Crude Prices Spike Higher, Equities Flat to Lower

Economic Data

- (DE) Germany Aug CPI Baden Wuerttemberg M/M: 0.0% v 0.2% prior; Y/Y: 0.2% v 0.2% prior
- (IE) Ireland July Retail Sales Volume M/M: 11.6% v -5.6% prior; Y/Y: 9.9% v 4.4% prior
- (PT) Portugal July Retail Sales M/M: 1.2% v -0.1% prior; Y/Y: 1.6% v 2.6% prior
- (PT) Portugal July Industrial Production M/M: -0.1% v -0.9% prior; Y/Y: 1.4% v 3.1% prior
- (MY) Malaysia July M3 Money Supply Y/Y: 3.9 v 6.0% prior
- (ZA) South Africa July Budget Balance (ZAR): -71.8B-66.2Be
- (BR) Brazil Aug FGV Inflation IGPM M/M: 0.3% v 0.2%e; Y/Y: 7.6% v 7.5%e
- (BR) Brazil Q2 GDP Q/Q: -1.9% v -1.7%e; Y/Y: -2.6% v -2.1%e; GDP 4-quarters Accumulated: -1.2% v -1.1%e
- (DE) Germany Aug Preliminary CPI M/M: 0.0% v -0.1%e; Y/Y: 0.2% v 0.1%e
- (DE) Germany Aug Preliminary CPI EU Harmonized M/M: 0.0% v -0.1%e; Y/Y: 0.1% v 0.1%e
- (US) July Personal Income: 0.4% v 0.4%e; Personal Spending: 0.3% v 0.4%e
- (US) July PCE Deflator M/M: 0.1% v 0.1%e; Y/Y: 0.3% v 0.3%e
- (US) July PCE Core M/M: 0.1% v 0.1%e; Y/Y: 1.2% v 1.3%e
- (CA) Canada July Industrial Product Price M/M: 0.7% v 0.0%e; Raw Materials Price Index M/M: -5.9% v -4.3%e
- (MX) Mexico July Unemployment Rate (unadj): 4.7% v 4.8%e; Unemployment Rate (Seasonally Adj): 4.3% v 4.4%e
- (BR) Brazil July Primary Budget Balance (BRL): -10.0B v -7.0Be; Nominal Budget Balance (BRL): -72.8B v -66.8Be
- (US) Aug Final University of Michigan Confidence: 91.9 v 93.0e

Shanghai gained another 4.8% today, however European and US stocks are not moving higher, and would likely be deeper in the red without solid gains in the energy complex. Sovereign yields have come in across the board, with the 10-year yield down four basis points to 2.145%. The big story this morning continues to be crude prices: WTI added 10% yesterday, the biggest one-day rise since the rally off the bottom in March 2009, and today the front-month contract added another 4.6% before coming off its highs. As of writing, DJIA is down %, the S&P500 is off % and the Nasdaq is down %.

Another day of dollar gains yesterday provided a nice assist for crude prices, as EUR/USD fell from 1.1350 to just shy of 1.1200. Yesterday Venezuela had reiterated its call for OPEC to convene an emergency meeting to address oil prices and consider a coordination with non-OPEC Russia to discuss a strategy to stem the rout, but report out this morning suggested that the Gulf OPEC members were unmoved and would stick to their strategy of using price declines to lower supply. WTI rose from around $39.50 to around $43 yesterday. This morning, the front-month contract tested below $42 several times before seeing a stunning mid-session spike all the way to $45.00. The contract has come off about $0.60 since then to trade around $44.40. Brent made a run for $50 but has fallen short around $49.50. There has been a broad-based rally in energy names accompanying the moves in crude prices, with the OIH up 3% and the USO up more than 4.5%. Note that CVX has added more than 3%.

The Kansas City Fed's annual Jackson Hole conference began today. Fed hawks Bullard and Mester (both non-voters) gave interviews in which they vigorously supported interest rate hikes. Mester avoided making any comments about September, but insisted the US economy would support tighter policy. For the second time in a week, Bullard dismissed the chaos in markets and said there was no reason to change the plan for near-term rate liftoff. Bullard insisted the US economy looks good and is poised to get even better, requiring Fed action. On the dovish side, Kocherlakota once again reiterated that the Fed should hold rates lower for a bit longer or even ease policy further.

The July PCE report was a bit weaker than expected, with the core y/y figure dropping slightly from the June report. Meanwhile the July Personal Spending data saw a healthy gain over the June figures, right in line with expectations. The slight deceleration in PCE certainly adds to the Fed's headaches, with the perception that inflation levels are headed in the wrong direction.

Looking Ahead

- 13:00 (US) Weekly Baker Hughes Rig Count
- 15:30 (MX) Mexico July YTD Budget Balance (MXN): No est v -345B prior