Spanish woes, along with rising risks of a conflicting nature, created some wild moves across the commodity complex. WTI crude plunged as Spanish protestors took to the streets, yet Brent crude stayed strong as Obama told the world that, “The United States will do what we must to prevent Iran from obtaining a nuclear weapon.” If that was not enough to try and twist traders around, there was the Federal Reserve Bank of Philadelphia, President Charles Plosser, telling the Fox Business Network and others that QE3D will fail as it won’t boost growth, it won’t boost hiring and may even, heaven forbid, jeopardize the Federal Reserve’s credibility. I amazed myself that I had the courage to get out of bed this morning.”
In Spain the pain is on the plane or at the very least, plain to see. In a scene that was reminiscent of the Greek austerity riots that set off the “Flash Crash,” Spanish protestors seemed to complicate an already complicated situation. The market was already disappointed with Spain’s early moves towards austerity and shrinking economy when it was reported that Spanish tax receipts through August fell 4.6% while government spending increased by 8.9%. Their deficit, as a percentage of GDP, increased to 4.77% of their GDP compared to 3.81% a year ago. Now with the Spanish people already complaining about austerity, I can’t wait for their austerity plan on Thursday! It is clear that without a bailout soon we may not just have to worry about a break-up of the euro but of Spain itself.
RT News reports that the Catalan region of North East Spain has called elections in November in an effort to get greater independence from Madrid. Catalonia produces a fifth of the country’s GDP and has had its plans to manage its own tax revenues rejected. Economically developed but heavily indebted, Catalonia plans to conduct elections two years ahead of schedule on November 25.
Doubts about Spain and doubts about QE3D caused by Charles Plosser and Tough Talk by Obama created some big moves in spreads as traders moved the market on headline after headline. We saw WTI crude sell off yet the Brent/Nymex crude spread widen out to $19.00 after being in the $15.00 handle last week as fears that a conflict with Iran over its nuclear program will be more likely. Headlines like: "Iran tests missiles close to the Strait of Hormuz" and that "Iran has its own drone" added to the drama. Yet the ring supply of WTI and fears of demand destruction caused the West Texas light sweet to fall.
Gold dipped on the fears that QE3d might not be the bullish event some hoped it would be yet failed to break any significant support. Perhaps gold may get some support from Iran war fears as well as the normal QE buying. Palladium though led the Industrial metals lower and put silver in another identity crisis as to whether it is a precious metal or an industrial one. The long end of the yield curve continues to rise as the safe haven play is coming back as the market asses the ring risks in Spain and the rest of the Euro zone.
Today we get oil inventories and it is Yom Kippur. Beware of light volume and big moves!