Oil price sinks to below $70 pb; a major strike against shale oil

You won’t find this (or the collapse of the global economy in the headlines!

Any number of stories to keep this out of the headlines – today is Thanksgiving, tomorrow is shopping and a detective writer and a cricket player died - lol

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged 

Zero Hedge,

27 November, 2014

But, but, but... all the clever talking heads said they wil have to cut...

• *OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE

WTI ($70 handle) and Brent Crude (under $75 for first time sicne Sept 2010) are collapsing... as will US Shale oil company stocks and bonds (and thus all of high yield credit) tomorrow. The Saudis are "very happy" with the decision, Venzuela 'stormed out, red faced, furious.' Commentary from various OPEC members appears focused on the need for non-OPEC (cough US Shale cough) nations to "share the burden" and cut production (just as the Saudis warned yesterday).

Live Feed (via OPEC) - click image for feed

*  *  *

It appears OPEC members have varying opinions...

• *KUWAIT'S OIL MINISTER SAYS HAPPY WITH OPEC OUTPUT DECISION
• *OPEC DECISION IS `VERY HAPPY' ONE: [SAUDI ARABIA] NAIMI
• *IRANIAN OIL MINISTER SAYS HE'S `NOT ANGRY' WITH OPEC DECISION
• #OPEC Venezuela Ramirez storms out red faced. Looked furious.
• *OPEC, NON-OPEC MUST SHARE OIL MKT BURDEN: NIGERIA MINISTER
• *OPEC `NOT PLAYING HARDBALL' IN OIL MARKET: NIGERIA MINISTER
• *OPEC DECISION WAS BEST THING TO DO AT THIS TIME: NIGERIA
• *OPEC MADE A GOOD DECISION: ECUADOR OIL MINISTER
• *WE ARE MAINTAINING OPEC UNITY: ECUADOR MINISTER

Maybe this is why...

*  *  *

This means that the oil price war that we discussed here is very much in place...

History may not repeat but it rhymes so loud sometimes that Einstein would be rolling in his repetitively insane grave. As Bloomberg notes, the last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. "1986 was the big price collapse and the industry did not see it coming,” said Michael Lynch, president of Strategic Energy and Economic Research who has covered the oil sector for 37 years, "it put a lot of them out of business. You just don’t forget it. It’s part of the cultural memory." Think it can't happen again? Think again... consider how levered US Shale drillers are and just what Saudi has to gain from keeping their foot on the US neck... In 1986, the U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

*  *  *

This is not good news for the US credit market...

According to a Deutsche Bank analysis looking at what the "tipping point" for highly levered companies is in "oil price terms", things start to get really ugly should crude drop another $15 or so per barrell. Its conclusion: "we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized. "

Here are the details:

So how big of an impact on fundamentals should we expect from the move in oil price so far and where is the true tipping point for the sector? Let’s start with some basic datapoint describing the energy sector – it is the largest single industry component of the USD DM HY index, however, given this market’s relatively good sector diversification, it only represents 16% of its market value (figure 2). Energy is noticeably tilted towards higher quality, with BB/B/CCC proportions at 53/35/12, compared to overall market at 47/37/17. We find further confirmation to this higher-quality tilt by looking at Figure 3 below, which shows its leverage being around 3.4x compared to 4.0x for overall market. Similarly, their interest coverage stands at noticeably higher levels, even having declined substantially in recent years (Figure 4).

 

 

Energy issuer leverage has increased faster than that of the rest of the market in recent years, but this trend has largely exhausted itself in recent quarters. As Figure 5 demonstrates, growth rates in total debt outstanding among US HY energy names have been only slightly higher relative to the rest of HY market. It is almost certain in our mind that with the current shakeout in this space further incremental leverage will be a lot harder to come by going forward.

 

Perhaps the most unsustainable trend that existed in energy going into this episode shown in Figure 6, which plots the sector’s overall capex expenditure, as a pct of EBITDAs. The graph averaged 150% level over the past four years, clearly the kind of development that could not sustain itself over a longer-term horizon. Our 45%-full sample of issuers reporting Q3 numbers has shown this figure coming down to 110%, a move in the right direction, and  yet a level that suggests further capacity for decline. This chart also shows, perhaps better than any other we have seen, the extent to which current economic  recovery in the US has in fact been driven by the energy development story alone.

 

 

The next question we would like to address here is to what extent the move in oil so far could translate into actual credit losses across the energy sector. To help us approach this question we are borrowing from the material we are going to discuss in-depth in next week’s report on our views on timing/extent of the upcoming default cycle. For the purposes of the current exercise we will limit ourselves to saying that we have identified total debt/enterprise value (D/EV) as an important factor helping us narrow down the list of potential defaulters. Specifically, our historical analysis shows that names that go into restructuring, on average, have their D/EV ratio at 65% two years prior to default, and, expectedly, this ratio rises all the way to 100% at the time of restructuring. From experiences in 2008-09 credit cycle we have also determined that there was a 1:3 relationship between the number of defaulting issuers and the number of issuers trading at 65%+ D/EV prior to the cycle. Again, we are going to present detailed evidence behind these assumptions in the next week’s report.

 

For the time being, we will limit ourselves to applying these metrics to current valuations in the US HY energy sector, and specifically, its single-B/CCC segment. At the moment, average D/EV metric here is 55%, up from 43% in late June, before the 26% move lower in oil. About 28 pct of energy B/CCC names are trading at 65%+ D/EV, implying an 8.5% default rate among them, assuming historical 1/3rd default probability holds. This would translate into a 4.3% default rate for the overall US HY energy sector (including BBs), and 0.7% across the US HY bond market.

 

Looking at the bond side of valuation picture, we find that energy Bs/CCCs are trading at a 270bp premium over non-Energy Bs/CCCs today (Figure 7). This premium implies incremental default rate of 4.5% (= spread * (1 – recovery) = 270 * (1-0.4) = 4.5%). Actual default rate among US HY Bs/CCCs is currently running at 3%, a level that we expect to increase to 5% next year (not to be confused with overall US HY default rate, currently running at 1.7% and expected to increase to 3.0% next year).

 

The bottom line is hardly as pretty as all those preaching that the lower the oil the better for the economy:

In the next step we are attempting to perform a stress-test on oil, defined this way: what would it take for overall US energy Bs/CCCs segment to start trading at 65%+ total debt/enterprise value? Our logic in modeling this scenario goes along the following lines: if a 25% drop in WTI since June 30th was sufficient to push their average D/EV from 43 to 55, then it would take a further 0.8x similar move in oil to get the whole sector to average 65 = (65-55)/(55-43) = 0.8x, which translates into another 20% decline in WTI from its recent low of $77 to roughly $60/bbl. If this scenario were to materialize, based on historical default incidence, we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.

How should one trade an ongoing collapse in oil prices? Simple: sell B/CCC-rated energy bonds and wait to pick up 10%.

If this scenario were to materialize, the US energy Bs/CCCs would have to trade at spreads north of 1,800bp, or about a 1,000bps away from its current levels. Such a spread widening translates into a 40pt drop in average dollar price from its current level of 92pts for energy Bs/CCCs.

It gets worse, because energy CapEx is about to tumble, which means far less exploration (and US fixed investment thus GDP), far less supply, and ultimately a higher oil price.

As the market adjusts to realities of sharply lower oil prices, it is important for to remember that the US HY energy sector is a higher quality part of the market. Higher credit quality will help many of them absorb an oil price shock without jeopardizing production plans or ability to service debt. Their capex rates, expressed as a pct of EBITDAs, have already declined from an average of 150% over the past four years to roughly 110% today. We still consider this level to be high and thus subject to further pressures. This in turn should work towards slower rates of supply growth, and thus ultimately towards supporting a new floor for oil prices. A 25% in oil price so far has pushed debt/enterprise valuations among US energy B/CCC names to a point suggesting 8.5% future default probability, while their bonds are pricing in a 9.5% default probability.

And the scariest conclusion of all:

Finally, our stress-test shows that a further 20% drop in WTI to $60/bbl is likely to push the whole sector into distress, a scenario where average B/CCC  energy name will start trading at 65% D/EV,implying a 30% default rate for the whole segment. A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized.

*  *  *

And US energy stocks...

As Barclays notes,

As oil prices continue to fall, we review the likely supply response of tight oil supplies. Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices remain at these levelsthrough 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016.

As we stated in the most recent Blue Drum, we expect a rebound in prices in 2H15. But, if prices do remain lower and fall to $70 for all of 2015, half of proven and probable (2P) remaining US tight oil reserves would be challenged. The near-term (6-month) effect would be marginal, but fewer new volumes would be added in 2H15 and in 2016. On a net basis, that implies a reduction to growth of about 100 kb/d for 2015 as a whole. A growth impact of 100 kb/d is a drop in the bucket in the context of total non-OPEC growth of around 1.5 mb/d. Thus, we expect downward price pressure to mount unless OPEC supplies less or demand rebounds.

At $70/bbl, 80% of the 2.8 mb/d of new tight oil volumes by 2017 (not including declines) would be produced (meaning 800 kb/d from new drilling, a reduction of 200 kb/d over the next three years), according to WoodMackenzie.

There are three reasons to be cautious with how cost curves are used.

First, WoodMac’s ‘half-cycle’ cost curve (above) represents new production only at a well, rather than at a project, level. Companies use ‘full-cycle’ economics (which include other expenses) to assess the economic viability of new drilling projects.

 

Second, cost curves do not address how existing production might react. For this, we turn to EIA’s Annual Energy Outlook. EIA scenarios which imply that if prices reach and stay at $70/bbl, annual growth of 630 kb/d by 2017 would be cut by 180 kb/d each year, net of declines.

 

Third, expected improvement in service costs will be another important determinant for the breakeven price of tight oil supplies. Oilfield services sector cost inflation has plateaued and stands to improve further in the coming years. This means that the cost curve in a year is likely to be up to $5/b lower on average. Permian D&C costs have declined from $9-10mn in 2012 to $5-7mn today.

OPEC producers have low production costs (in Saudi Arabia, even as low as $4/bbl), but will feel the heat fiscally. Still, tight oil producers are likely to be first affected in a low price environment.

Companies are likely to react very differently regarding their market capitalization, hedge ratio, and ‘oiliness’ of output. We estimate that small and mid-cap E&Ps(accounting for 880 kb/d oil and NGLs) would see earnings cut by 17% in 2015 at $80 and by 25% at $70/b, which would likely lead to a cut to capex and drilling plans in 2015. Adding production from infill drilling, drilling in new areas, and enhancing recovery rates from existing wells would add output but require different levels of capex. Wells already online would not be affected, in our view.

*  *  *

So much for Saudi cooperation...

• *SAUDI'S NAIMI SAYS OPEC DOES NOT CUT OIL PRODUCTION

And now back to the old "plunging oil prices are good for the economy" spin cycle.

OPEC Decision Is "Major Strike Against The American Market", Russian Tycoon Says

Zero Hedge,

27 November, 2014

As we warned yesterday, the last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. OPEC's decision not to cut production, and Nigeria's comments on the need for burden-sharing among non-OPEC members, ensures a crash in the US shale industry according to Leonid Fedun (Russia's Lukoil board member). The Russian finance minister's comments that oil at $80 in coming years is moderately optimistic and as Fedun ominously warns, this is a "major strike against the American market." Isolated, much?

As Bloomberg reports,

OPEC policy on crude production will ensure a crash in the U.S. shale industry, a Russian oil tycoon said.

 

The Organization of Petroleum Exporting Countries kept output targets unchanged at a meeting in Vienna today even after this year’s slump in the oil price caused by surging supply from U.S shale fields.

 

American producers risk becoming victims of their own success. At today’s prices of just over $70 a barrel, drilling is close to becoming unprofitable for some explorers, Leonid Fedun, vice president and board member at OAO Lukoil, said in an interview in London.

 

“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun, who’s made a fortune of more than $4 billion in the oil business, according to data compiled by Bloomberg. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.”

...

In Russia, where Lukoil is the second-largest producer behind state-run OAO Rosneft, the industry is much less exposed to oil’s slump, Fedun said. Companies are protected by lower costs and the slide in the ruble that lessens the impact of falling prices in local currency terms, he said.

 

Even so, output in Russia, the biggest producer after Saudi Arabia in 2013, is likely to fall slightly next year as lower prices force producers to rein in investment, Fedun said.

 

“The major strike is against the American market,” Fedun said.

*  *  *

“Everybody is trying to put a very happy spin on their ability to weather $80 oil, but a lot of that is just smoke,”said

Daniel Dicker, president of MercBloc Wealth Management Solutions with
25 years’ experience trading crude on the New York Mercantile Exchange. 

“The shale revolution doesn’t work at $80, period.”

Oil Slumps To 4 Year Low Ahead Of OPEC, Eurozone Yields New Record Lows: Summary Of Overnight Events

Zero Hedge,

27 November, 2014

While the US takes the day off after another near-record low volume surge to a new all time high in the S&P500, a level which is now just 125 points away from Goldman's year end target for 2016, the rest of the world will be patiently awaiting to see if oil's next move, as a result of today's OPEC meeting will be to $60 or to $100. For now at least the answer is the former (see more here from the WSJ), with Brent recently touching a fresh 4 year low in the mid-$75s, as WTI doesn't fare much better and was down 2% at last check to $72.20 after touching a low of $71.89. It appears the prepared remarks by the OPEC president to the 166th conference have not eased fears that despite all the rhetoric OPEC will be unable to get all sides on the same story, even though the speech notes "ample supply, moderate demand and warns that "if falling price trend continues, “long-term sustainability of capacity expansion plans and investment projects may be put at risk."

But while crude is crashing, Eurozone bonds continue to reach for fresh record high, with all peripheral bond yields down to new all time lows and the Germany 10 Year sliding as low as 0.711%, in its quest to catch up with the 10 Year JGB which at last check was trading just a fraction over 0.40%.

One outlier is Greece: what has been increasingly questioned by credit investors of late is the disbursement of Greece’s bailout programme. Following a marathon 24hour discussion in Paris, Greece and its EU/IMF lenders apparently failed to reconcile their differences over next year’s fiscal gap which is holding up the final review of the programme. Per the WSJ, international creditors are looking at extending Greece’s bailout program by up to 6 months but to get the extension the Greek government would have to formally request it by the end of next week. 

The discussions will move from Paris to Brussels ahead of the Eurogroup meeting on December 8th. There is also an emergency meeting this morning between Samaras and Vice President/Foreign Minister Venizelos. Greek as well as Spanish and Italian bonds were the clear underperformer yesterday amid the further strength in core government bond markets. As a result, this morning the 10yr Greek bond yield has jumped substantially and stood just shy of 8.50% at last check.

And with central banks now firmly in control of all assets, as bonds rise so do stocks, and European equities trade in the green across the board after steadily ebbing higher throughout the session with the DAX ascending towards the 10,000 handle; a level which hasn’t been reached since the 7th July.

As RanSquawk summarizes, macro newsflow has remained relatively light throughout the session, although this morning’s Eurozone data releases have continued to highlight a dreary picture of the area’s inflation prospects with both Spanish and German state CPI's highlighting the deflationary pressures in Europe. More specifically, the prospect of falling inflation in the Euro-zone will likely re-ignite the premise of potential QE from the ECB in order to stimulate prices and safe guard the Euro-zone. As such bund futures have continued to edge higher touching fresh contract highs at 152.75, albeit in relatively light volume owning to the Thanksgiving holiday.

To summarize:

European shares rise with the real estate and chemicals sectors outperforming and oil & gas, retail underperforming. The German and Italian markets are the best- performing larger bourses. German jobless rate reaches record low, Brent crude drops to 4-year low, Spanish consumer prices drop more than forecast. China’s central bank refrained from selling repo agreements for first time since July, loosening monetary policy further. U.S. Thanksgiving holiday today.
Euronext says indexes not calculating due to technical problem.

The euro is weaker against the dollar. French 10yr bond yields fall; German yields decline. Brent and WTI crude fall as OPEC ministers start meeting in Vienna.

Market Wrap

• S&P 500 futures little changed at 2071.4
• Stoxx 600 up 0.3% to 347.4
• German 10Yr yield down 2bps to 0.71%
• MSCI Asia Pacific down 0.2% to 141.1
• Gold spot down 0.2% to $1196/oz

FX

In FX markets, EUR has remained under pressure ever since European participants came into the market following the aforementioned data releases. More specifically, EUR/USD consolidated its break below 1.2500 and EUR/GBP tested 0.7900 after EUR/USD broke out of its overnight range. Elsewhere, antipodean currencies have pulled away from their best levels seen overnight with NZD higher overnight following RBNZ data which showed the central bank did not intervene in Oct, while AUD was seen higher during Asia-Pacific trade following strong CapEx data.

COMMODITIES

WTI and Brent Crude futures continue to see selling pressure and currently reside at session lows with OPEC firmly looking set to maintain their production target with the formal announcement due later today. This comes after comments yesterday from Saudi Oil Minister Al-Naimi who said Persian Gulf countries have reached a consensus on output and will take a “unified position”, with the likely course of action being maintaining the current ceiling as reported by the WSJ on Tuesday. In metals markets, Overnight in the precious metals, notable weakness was observed across the complex with spot gold falling below yesterday's lows (down as much as 2%), platinum declining by 1.1% and silver tumbling 2%, after breaking back below the 50% fib retracement level of the October sell-off seen at USD 16.435. Nonetheless, a bulk of these losses were pared heading into the European open amid no fundamental news and light volumes with the US closed for Thanksgiving.

* * *

DB's Jim Reid concludes the summary of overnight events

Happy Thanksgiving to our US readers. It’s likely to be a quiet day but we do have an important OPEC meeting to look forward to. As we mentioned in yesterdays EMR, DB’s Michael Lewis believes that oil fundamentals are currently suggesting that a coordinated cut in OPEC supply is inevitable based on supply and demand dynamics, although uncertainty centres on the timing and whether this turns out to be coordinated or not. Oil came under further pressure yesterday with WTI (-0.54%) and Brent (-0.74%) closing at $73.69 and $77.75 respectively at the end of NY trading before sliding further this morning. A Gulf OPEC delegate apparently told Reuters that the GCC had reached a consensus not to cut oil output. Three OPEC delegates also apparently told Reuters they believed OPEC was unlikely to take any action today. Indeed there seems to be different views amongst top oil producers. Venezuela and Iraq are calling for production cuts. Rosneft has said that it will not reduce output even if oil falls to US$60. Iran’s oil minister said his position on oil is close to that of Saudi Arabia’s. Saudi’s oil minister was quoted as having said that ‘the market will stabilise itself eventually’ signaling little willingness to reduce production. The impact of lower oil is also starting to feed through the banking system with FT overnight reported that Wells Fargo and Barclays now face potential losses on a US$850m bridge loan to help fund the merger of two US based oil companies. Anyways the OPEC meeting will start at 9.30CET and a live webcast streaming is available on the OPEC website for those interested in the proceedings.

Away from Oil one of the key data prints today will be inflation stats from Germany ahead of the euroland CPI tomorrow. Our European economics team sees the risks of this week’s November CPI prints skewed to the upside, especially in Germany. They expect Germany’s yoy inflation to remain broadly unchanged from October. Whilst energy prices are expected to be a drag on headline inflation, our colleagues think the food inflation outlook is more uncertain in that unprocessed food inflation has started to normalise and services inflation has been trending broadly sideways. Overall this could lead to a temporary bounce but overall the risks to the medium term inflation outlook are still on the downside and given the fall in oil they see the risk of European inflation reaching a new low of 0.2% yoy in December. Inflation data aside, Draghi’s speech at a seminar organised by the Bank of Finland at 11.30am UKT is probably another key event to watch. Draghi is expected to talk about the European economy at the University of Helsinki after which there will be a Q&A session with the audience.

Staying on European affairs, we’ll briefly highlight more on European Commission President Juncker’s Investment plan for Europe. The long awaited plan to boost investment in the EU was presented to European Parliament yesterday and the focus was on the creation of a new institution called the European Fund for Strategic Investments (EFSI). The EFSI is to be funded using existing resources – EUR 5bn from the EIB and EUR 16bn of EU budget guarantees. Through leverage and co-financing this aims at mobilising a total of EUR315bn of investment into long-term projects and SME and mid-cap investment over 2015-17. The key differences to existing activities (EIB and EIF) are that the EFSI will increase leverage of the EU budget funds, will invest in riskier projects (providing subordinated debt and equity) and will come with technical assistance to facilitate private investment. Our European economists see the plan as a step in the right direction but they remain doubtful that this will represent a successful paradigm shift. Particularly they think credibility of the plan will be questioned but more importantly no new commitment of resources has also been announced so much still hinges on private sector financing.

What has been increasingly questioned by credit investors of late is the disbursement of Greece’s bailout programme. Following a marathon 24hour discussion in Paris, Greece and its EU/IMF lenders apparently failed to reconcile their differences over next year’s fiscal gap which is holding up the final review of the programme. Per the WSJ, international creditors are looking at extending Greece’s bailout program by up to 6 months but to get the extension the Greek government would have to formally request it by the end of next week. The discussions will move from Paris to Brussels ahead of the Eurogroup meeting on December 8th. There is also an emergency meeting this morning between Samaras and Vice President/Foreign Minister Venizelos. Greek as well as Spanish and Italian bonds were the clear underperformer yesterday amid the further strength in core government bond markets.

Indeed the 10yr Greek bond yield rose by 29bps to 8.059% whereas yields in Italy and Spain also rose 2bp and 5bp respectively. 10yr bunds, OATs and Gilts were down 1.3bp, 1.6bp and 3bp respectively. Staying in the region we had some notable ECB-speak yesterday. ECB’s vice-president Constancio suggested that the ECB will only be able to gauge in Q1 of next year the effect of current stimulus measures. Specially, he added that ‘we will have to consider buying other assets, including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available’. As DB’s Saravelos highlighted it is worth noting that his comments also directly echoes the Draghi speech on the justification for QE namely that: even if the effects are smaller than the US doesn’t mean we shouldn’t be doing it and it is not the job of the ECB to deal with moral hazard. Constancio is also the vice president of the ECB, which confirms the ‘semi official’ position of the central bank. For the first time also was the modalities of the QE mentioned and it was explicit that it will be capital key weighted that there are no legal issues around it. These are all in line with our European colleagues who see Q1 2015 being the most likely time for the ECB to move to public QE. In other European markets yesterday, the Stoxx 600 closed flat although we did have the DAX (+0.6%) rally for its tenth consecutive day. The DAX is now around 16% above its mid-October lows but still a relative underperformer against US equities for the year.

Indeed the S&P 500 (+0.28%) posted a new record high yesterday despite a relatively soft round of data from the US. Durable goods came ahead of expectations (+0.4% mom vs. -0.6% mom expected) but the picture was more subdued once we strip out the defence and aircraft elements (1.3% mom reading vs +1.0% consensus), marking a second consecutive monthly decline. The initial jobless claims (+313k vs. +288k expected), personal spending (+0.2% vs. +0.3% expected), and pending home sales (-1.1% mom vs. +0.5% mom) were all softer across the board although new home sales saw an upward revision to last month’s reading. On the activity side, the Chicago PMI fell 5.4pts to 60.8 (consensus 63.0) but still remains at solidly strong levels. Finally the University of Michigan confidence reading came in below consensus at 88.8 but still at a 7-year high.

Quickly refreshing our screens this morning markets are a little mixed in Asia. The Nikkei (-0.7%) and TOPIX (-0.8%) are suffering from their second consecutive day of declines whereas Chinese equities are adding on to their recent gains. The Shanghai and Shenzhen Composites are up around three tenths of a percent this morning with the risk tone still benefiting from the PBOC easing theme. There were also signs of further liquidity support overnight with the PBOC refraining from selling repurchase agreements for the first time since July. The 7day repo rate in China fell as much as 10bps overnight in Shanghai. Asian credit is trading on a firmer footing overnight as recent supply is gradually being digested.

With US markets closed trading activity could well be on the low side today. Focus will be on the OPEC meeting today as well as European data releases this morning. Besides the aforementioned German CPI print and Draghi’s speech, we have the November unemployment print for Germany, GDP/CPI for Spain, sentiment reading for Italy, and ECB money supply stats to name a few.