Swiss Gold Referendum Fails: 78% Vote Against "Protecting The Country's Wealth"

Whether as a result of an unprecedented scare campaign by the Swiss National Bank (most recently reinforced by Citigroup), or due to confidence that Swiss gold is as safe abroad as it is at home, or simply due to good old-fashioned "hanging chads", today's most awaited event has come and gone and the result - according to early projections by Swiss television SRF - is that the Swiss population overwhelmingly rejected a referendum to force the Swiss National Bank to hold some 20% of its reserves in gold in a landslide vote, with about 78% voting against what AP politely termed "protecting the country's wealth by investing in gold."

As Bloomberg reports, the proposal stipulating the Swiss National Bank hold at least 20 percent of its 520-billion-franc ($540 billion) balance sheet in gold was voted down by 78 percent to 22 percent, according to projections by Swiss television SRF as of 1:00 p.m. local time. The initiative “Save Our Swiss Gold” also would have prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U.K. to be repatriated.

A map showing the breakdown of the Swiss vote by canton: none of the 23 Swiss regions had a majority vote for the gold initiative.

That said the decision will likley not come as a surprise because while early polls gave the yes camp a surprising lead, subsequently polling showed a marked shift in public opinion, and forecast the initiative’s rejection.

The biggest winner, of course, is the Swiss central bank: SNB policy makers warned repeatedly that the measure would have made it harder to keep prices stable and shield the central bank’s cap on the franc of 1.20 per euro. That minimum exchange rate was set three years ago, with the SNB pledging to buy foreign currency in unlimited amounts to defend it.

“The SNB can feel confirmed in its policy,” said Martin Gueth, economist at LBBW in Stuttgart. “By rejecting the gold measure, voters have come out in favor of its current stance.”

Referendums are a key feature of Switzerland’s system of direct democracy, and are held nationally and at a municipal level several times a year. The gold initiative was launched by a handful of members of the European Union-skeptic Swiss People’s Party. Uneasy about the more than 100 billion euros the SNB holds, they contend their initiative will strengthen -- not weaken -- the central bank’s credibility.

However, SNB President Jordan labeled the initiative “dangerous” and his fellow board member Fritz Zurbruegg said accepting the measure meant the room for maneuver “on currency reserves would be dramatically restricted, with negative consequences for the Swiss economy.”

The central bank, based in Bern and Zurich, would have faced a three-year deadline for repatriating its bullion from abroad and five to meet the 20 percent benchmark. With the European Central Bank poised to enact more stimulus to boost feeble growth and inflation, economists surveyed by Bloomberg News in a poll published on Nov. 19 had expected the SNB to maintain its ceiling on the franc into 2017.

The question now is what will happen to the Swiss France, which recently rose to a 26-month high against the euro. For many the concern that a successful gold referendum served as a catalyst to avoid going all in the CHF, as gold purchases would have weakened the currency. “If the euro crisis doesn’t get worse, then the minimum exchange rate will be defendable, said David Marmet, an economist at Zuercher Kantonalbank. Had the initiative been accepted, ‘‘instruments such as negative rates that don’t widen the balance sheet” would have been an option, he said.

With the referendum out of the way, the CHF may paradoxically find itself with a situation in which the inflows in the CHF force it to double down on defending the cap: economists have questioned whether the SNB will now find itself having to reinforce its cap with a negative interest rate on the cash-like deposits commercial banks keep with the central bank, making good on its threat to take further steps “immediately” if necessary.

And then there is the question of what happens to the tension in the gold swap market: as noted last week, the 1 Month GOFO rate had tumbled to the most negative in over a decade. It was not clear if this collateral gold squeeze was the result of Swiss referendum overhang or due to other reasons. The market's reaction on Monday should answer those questions.

India scraps gold import restrictions

The Reserve Bank of India has just announced on its website the scrapping of restrictions on gold imports, and the withdrawal of the so-called 20:80 rule which forces traders to re-export 20% of all imports.

The import curbs came into force in August 2013, to shore up the tanking rupee and tackle the country's current account deficit which had ballooned to 5.5% of GDP.

The surprise decision – most observers were calling for a tightening – did little for the price of gold in New York, which was last trading down nearly $20 an ounce at $1,178 an ounce, the lowest in more than two weeks.

Although details of the move still has to be disclosed it's likely that the precipitous fall in the price of oil – India's top import ahead of gold – played a role.

Indian gold imports have surged recently, but the decline in crude price will soften the impact should Indian traders continue to ramp up purchases.

CHART: Another huge Friday gold price takedown

After an uneventful week where gold stayed within striking distance of $1,200 an ounce, Friday saw another big move in the price in heavy volume.

The first gap down came right at the open, when a huge sell order of more than 1.2 million ounces dropped the price out of it's trading range.

Then around mid-day another series of trades took the price down to a day low of $1,163.90, a drop of 2.8% from yesterday's close.

For the session volumes were heavy with the most active contract trading the equivalent of 24 million ounces, almost double the three-month average.

A freefall in the price of oil – down 10% on the day – and doubts about the outcome of the Swiss vote on the country's gold reserves could partly explain the drop.

But the surprise scrapping of import duties by top gold consumer India should have buoyed the price. Even before the lifting of the curbs, India's import of gold rocketed and providing a floor for the physical market.

By the close of trade on the Comex division of the New York Mercantile Exchange gold for February delivery was changing hands not far off the lows at $1,165.80 an ounce, down $31.70.

Brent Crude Crashes 7%,after OPEC meeting

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged
OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE WTI @70 and Brent Crude (under $75 for first time since Sept 2010 are collapsing. Big Positive for India

Lowest since June 2010…

CHARTS: Dollar destruction of commodity prices could be ending

The gold price drifted lower on Thursday falling below $1,200 and down nearly $10 overnight, hurt by a 6% slide in the price of oil.

The two commodities often move in tandem because cheaper crude leads to lower inflation, tarnishing gold attractiveness as a hedge against faster rates of price growth.

The fall in the price oil has given another boost to the US dollar. Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.

The greenback's rise to near five-year highs against a basket of currencies has pressurized not on the price of gold, but everything from copper and cotton to milk and molybdenum.

InvesTRAC passed on this price graph to MINING.com indicating that the US dollar's stunning run since May may be close to correcting.

The technical research and investment blog notes the advance from the May low has "unfolded in five waves which ought to be followed by a three wave correction":

The top of wave 5 seems to be tracing out a head and shoulders top and a dip through 87.50 would open the way to violate the uptrend and teat the bottom of wave 4 at 84.50. The technical picture shows InvesTRAC's short term direction indicator has turned down from an overbought situation with the forecaster showing weakness could be expected until the last week of December. So the stage is set for declining dollar and rising to soon get underway.

InvesTRAC believes the dollar chart confirms movements in the CRB Commodities index and that the decline in the broader commodities index from its June high was probably terminating after a 15.5% decline.

The InvesTRAC short term model shows that the OB/OS indicator has just begun to rise with the forecaster showing a rising ternd into early February. The daily chart below shows a 15 percent rise form the January lows which has more than been taken back by the second half slump…the index has ticked up slightly and is encountering the downtrend with a massive divergence on its RSI. My conclusion is that the worst is over and that we should now (or very soon) see the hard hit commodity prices lifting off their lows.

Copper drops to three-week low on demand worries, aluminium up

* Weak U.S. home sales, consumer spending data
* Chinese speculators hit copper on Shanghai exchange
* London volumes retreat as Thanksgiving, year-end loom
* Nickel stocks rise to fresh record

(Reuters) - Copper fell to a three-week low on Wednesday after soft U.S. economic data and as Chinese speculators hit the market amid worries about weak demand.

Aluminium, however, gained on concern about shortages.

Three-month copper on the London Metal Exchange

(LME) fell to its lowest since Nov. 5 at $6,558 a tonne in intraday trade before paring losses to close 0.6 percent weaker at $6,570.

Volumes on the LME shrank ahead of the U.S. Thanksgiving Day holiday on Thursday.

"It has been a difficult year for speculators to make money and I don't think they are going to risk making bigger losses or eroding some of their gains in the final few weeks of the year, particularly when there aren't really any big stand out stories," said Gayle Berry, metals strategist at Jefferies.

On the Shanghai Futures Exchange, however, turnover climbed four-fold and open interest surged 11 percent as speculators sold copper, said analyst Leon Westgate at Standard Bank.

"With general sentiment at last week’s Asian Copper Week remaining negative... it appeared to be only a matter of time before the more bearish elements of the Chinese speculative community again had another go at shorting the metal."

The metal used in power and construction has been trading in a range between roughly $6,500 and $6,800 a tonne since mid-September and is down more than 10 percent this year.

It hit a three-week high of $6,772.50 a tonne last week following China's surprise interest rate cut. That cut may boost liquidity to businesses after about six months, said Colin Hamilton, head of commodity research at Macquarie.

"This is not an aggressive stimulus ... but it certainly underpins what we're looking at in terms of low single-digit growth rates for steel demand and mid single-digit growth rates for base metals demand into next year," he told a presentation.

Weak U.S. data on consumer and business spending added to jitters about global growth. 

Aluminium rose 0.6 percent to close at $2,061 a tonne as a key spread remained at the highest levels in nearly two years, indicating lack of spot material.

Nickel ended down 1.1 percent at $16,350 a tonne after LME stocks rose to a fresh all-time high.

Zinc finished up 0.1 percent at $2,273 a tonne, lead added 0.5 percent to $2,062.50 and tin rose 0.4 percent to close at $20,275.

Something Appears To Be Going On With Gold

Something appears to be happening to gold. That something is either China finally revealing its true gold inventory, which is unlikely, or, more likely, the biggest fat finger in the history of gold, as a liquidity testing algo goes absolutely insane in the pre-open period (and loses its job on the BIS' payroll). Or, most likely, just an ongoing bad print.

... and the algo, or the bad feed, or whatever, keeps going. $1400 now.

And... CTRL-Z. The liquidity test is complete as electronic market reopens for trading.

And for those curious to find out what happened, speak to the programmer of whatever the liquidity test was that moved gold higher by $0.10 every second in 1 contract in a diagonal fashion.

Intresting Study on S&P500

The last few weeks have been the strongest and most consistent rallies in US equity market history. US equity markets have traded above their 5-day moving average for 27 days – the longest such streak since March 1928  and all amid  GDP downgrades, missed PMIs, and downward earnings outlook revisions. Given the holiday week, it is hardly surprising volume was weak today.

27 days and counting for the S&P… an 86 year record… (within a year of this exuberance stocks had doubled and then halved from low)

This is what happened the last time the market did that…

Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow

While OPEC has been mostly irrelevant in the past 5 years as a result of Saudi Arabia's recurring cartel-busting moves, which have seen the oil exporter frequently align with the US instead of with its OPEC "peers", and thanks to central banks flooding the market with liquidity helping crude prices remain high regardless of where actual global spot or future demand was, this Thanksgiving traders will be periodically resurfacing from a Tryptophan coma and refreshing their favorite headline news service for updates from Vienna, where a failure by OPEC to implement a significant output cut could send oil prices could plunging to $60 a barrel according to Reuters citing "market players" say.

By way of background, the key reason OPEC is struggling to remain relevant is because, as the FT reportedover the weekend, "US imports of crude oil from Opec nations are at their lowest level in almost 30 years, underlining the impact of the shale revolution on global trade flows. The lower dependence on imports from the cartel, which pumps a third of the world’s crude, comes amid advances in hydraulic fracturing that has propelled domestic US production to about 9m barrels a day – the highest level since the mid-1980s."

The US "shale miracle" is best seen on the following chart showing the total output of the US compared to perennial crude powerhouse, Saudi Arabia:

It is this shale threat that has become the dominant concern for OPEC, far beyond whatever current US national interest are vis-a-vis Ukraine, and Russia's sovereign oil revenues, and as reported previously, Brent has to drop below to $75 or lower for US shale player to one by one start going offline.

Unfortunately, it may bee too little too late for the splintered cartel. As Bloomberg reports, "the days when OPEC members could all but guarantee consensus when deciding production levels for oil are long gone, according to a veteran of almost two decades of the group’s meetings."

The global glut of crude, which has contributed to a 30 percent decline in prices since June 19, has left the Organization of Petroleum Exporting Countries disunited and dependent on non-members to shore up the market, said former Qatari Oil Minister Abdullah Bin Hamad Al Attiyah. The 12-member group is set to meet in Vienna on Nov. 27.

“OPEC can’t balance the market alone,” Al Attiyah, who participated in the group’s policy meetings from 1992 to 2011, said in a Nov. 19 phone interview. “This time, Russia, Norway and Mexico must all come to the table. OPEC can make a cut, but what will happen is that non-OPEC supply will continue to grow. Then what will the market do?”

...

“OPEC had been enjoying easy meetings, and decisions were taken without a sweat,” Al Attiyah said. “Now the situation is different.”

Oil markets are oversupplied by about 2 million barrels a day, and global economic growth is below expectations, he said. “The U.S., which was a major market for OPEC, is no longer welcoming imports. It’s now striving to become an oil exporter. It’s already exporting condensates.”

So if OPEC is unable to reach an agreement, what is the worst case? Back to Reuters, which says that "The market would question the credibility of OPEC and its influence on global oil markets if there was no cut," said Daniel Bathe, of Lupus alpha Commodity Invest Fund.

That could send Brent down to around $60, Bathe said.

"Herding behavior and a shift to net negative speculative positions should accelerate the price plunge," he added.

Fund managers are divided over whether OPEC will reach an agreement on cutting output. Bathe put the likelihood at no more than 50 percent.

The oil price has been falling since the summer due to abundant supply -- partly from U.S. shale oil -- and low demand growth, particularly in Europe and Asia.

As a result, some investors believe a small cut -- of around 500,000 bpd -- would not be enough to calm the markets.

If OPEC fails to agree a cut, prices will drop "further and quite quickly", with U.S. crude possibly sliding to $60, he said. U.S. crude closed at $76.51 on Friday, with Brent just above $80.

It's not all downside: there is a chance that OPEC will agree on a 1 million barrel or more cut, which would actually send prices higher:

"The market really wants to see that OPEC is still functioning ... if there is a small cut, with an accompanying statement of coherence from OPEC that presents  a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90."  "Prices below $80 are putting significant strain on the cartel's weakest members such as Venezuela," said Nicolas Robin, a commodities fund manager at Threadneedle. He said a bigger cut -- of 1 million bpd or more -- was an "outlier scenario", but such a move would rapidly push prices above $85.

Then again, even thay may be insufficient if the market prices in an ongoing deterioration in global end-demand: "Doug King, chief investment officer of RCMA Capital, sees Brent falling to $70, even with a cut of 1 million bpd."

So in a worst case scenario, where Brent does indeed tumble to $60, what happens? We already know the answer, as it was presented in "If WTI Drops To $60, It Will "Trigger A Broader HY Market Default Cycle", Says Deutsche":

... it is not just the shale companies that are starting to look impaired. 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. "

This explains why the HY space has been far less exuberant in recent weeks, and the correlation between HY and the S&P 500 has completely broken down.

Finally it is not just the junk bond sector that is poised for a rout should there be no meaningful supply cuts later this week: recall that in another note over the weekend, DB said that should crude prices take another leg lower, then the most likely next outcome is a Profit recession, which while left unsaid, will almost certainly assure a full-blown, economic one as well.

So keep an eye on Vienna this Thanksgiving: the black swan may just be coated with an layer of crude oil this year.

Teck predicts zinc deficit on the closure of mining giants

The Vice President for Treck’s Investor Relations and Strategic Analysis,Greg Waller, stated that, the global market of the metal zinc, will soon face a deficit as the large scale zinc producers like  the Century Mine, owned by the MMG Group based in Australia, is planning on shutting down the mine after the  third quarter of this year. This procedure will most probably erase about 1.5 million tonnes of zinc produce from the global market.

Waller further added that, the metal zinc, might be seen more appealing to the investors right now. The metal has been progressed further more during the cycle. The following three years fill be filled with closure of several dominant zinc mines, from which many number of the has recently stopped their production of zinc. The market of zinc will definitely be in deficit.

He added that, the global zinc market, for  the next four years at least will have to face the lack of exploration zinc projects. Many miners in the process of hiking up the demand of zinc and also the price of the metal, has stocked up their production further increasing the deficit of the metal and making it worse. They are putting up their output until the price of zinc climbs over to 1 dollars per pound.

NATO Jets Surrounding Russia: Before And After

Based on the following "before" and "after" the Ukraine crisis pictures of NATO warplanes located just off the Russian border...

Before:

After:

... one can almost understand why Victoria Nuland was so eager to tell the EU to "fuck off" in her successful attemp to foment Ukraine unrest leading to the overthrow of ex-president Yanukovich, and destabilize the region, giving NATO a pretext for a major arms build up on the other side of the Russian border.

Per CNN, "There used to be only four jets ready to intercept Russian planes that crossed into European airspace. Now there are 18." And rising.

As for what the US response would be if Russia were to park a few squadrons of Mig-35s in Cuba, Canada and Mexico, we leave that to the reader's imagination.

Everything You Need to Know About The Swiss Gold Referendum

On November 30, Swiss nationals head to the polls on three separate issues: abolishing a flat tax on resident, non-working foreigners, an immigration cap, and a proposal on Swiss gold reserves. As Visual Capitalist notes, the one we are most interested in is the latter section of the ballot, and today’s infographic sums up everything you need to know about the upcoming Swiss gold referendum.

The referendum, if passed, will mean that (1) The Swiss National Bank must hold 20% of all assets as gold, (2) Switzerland will repatriate the 30% of their gold held abroad by England and Canada, and (3) Switzerland may no longer sell any gold they accumulate.

In the most recent polling, 38% of respondents supported the initiative, 47% were against, and 15% were undecided. The poll has a 3% margin of error as well. While support is down from the previous poll, anything is still possible on November 30th.

Switzerland currently holds 1,040 tonnes, or 7.7% of its reserves in gold. The country actually holds the highest amount of gold per capita (4.09 oz per citizen). However, it used to be an even bigger holder of the yellow metal. In 2000, the SNB held 2,500 tonnes of gold and it has also been the biggest national seller since.

The implications of the vote are huge. With a “yes”, the SNB would have to purchase at least 1,500 tonnes of gold to meet the 20% threshold for 2019. That’s about half the world’s annual production. It would also put Switzerland back in the top three for most gold holdings worldwide.

Courtesy of: Visual Capitalist

S&P 500 "Most Overbought" Since Feb 2012

The explosive surge in US equity markets off the 'Bullard' lows have swung the Relative Strength Index (RSI) from its most oversold in 24 months to the most overbought in 33 months in a record amount of time. The last time the market was this 'overbought', the S&P 500 fell almost 11% in the following few weeks...

Gold Tops $1200 As China Cuts, Draghi Jawbones

First Mario Draghi made some strong statements speaking in Asia that "it is essential to bring back inflation to target and without delay," which sent EURUSD tumbling BUT did not spark moves in the S&P 500 (though Gold slipped). It was not until the PBOC cut rates that the US equity market perked up and started ripping... along with gold and as the morning progressed, gold has kept going as it is clear the Central Banks of the world have only one policy left... (no wonder the Dutch want their gold back)

It appears that while Draghi's comments impacted European stocks (DAX surged)...

Zinc's premium over lead to extend decline after peak

* Zinc premium over lead hits highest in nearly 6 yrs in late Oct

* Lead may close some of price gap on winter battery demand

* Doubts emerge on scope of zinc supply/demand deficits

(Reuters) - Zinc's premium over sister metal lead is likely to continue to slip in coming months after hitting a multi-year peak as lead demand climbs during the seasonally strong winter and amid doubt over the scope of projected deficits in zinc.

Zinc's price gap over lead expanded to a high of $297 a tonne at the end of October, the strongest in nearly six years, after investors piled into the zinc market on bets that the closure of big mines would lead to deep deficits.

The rich premium of galvanising metal zinc represents a big reversal in the relationship between the two metals, which are often used as the basis for trading strategies, using either the spread or the ratio.

The premium, based on London Metal Exchange benchmark prices, has since pulled back to $226.

The extent to which investors have bought zinc and shunned lead is out of proportion to fundamentals, some analysts argue.

Both metals are typically found in the same mines so lead supplies should also be affected by mines shutting down.

"Lead is moving into structural deficit at least in tandem with zinc, and lead inventories are much lower," BNP Paribas analyst Stephen Briggs said in a note. "The discount to zinc may narrow."

Instead of a premium, a year ago zinc was at a discount to lead by about $200 with zinc weighed down by heavy surpluses.

One reason the lead price has underperformed this year is disappointing demand, partly due to weak sales of electric bicycles in China which use lead-acid batteries. Batteries account for 80 percent of global lead consumption.

That side of the equation is likely to improve in coming months since battery makers often see increased business in cold weather due to increased battery failures.

"Usually lead is seasonably stronger into the back end of the year as well as January and February, so maybe we can see some of that underperformance unwound," said Citi analyst David Wilson.

Temperatures in all 50 U.S. states hit freezing or below this week as unseasonably cold weather moved across the country.

Many bullish zinc investors base their views on big supply/demand deficits developing, but some analysts say any shortfalls may be less than expected, which could curb zinc's gains.

Analyst Jessica Fung at BMO Capital Markets pointed to two recent expansion announcements - by Vedanta Resources at a new mine in South Africa and Boliden at its Odda smelter in Norway.

"These projects...indicate there are opportunities to close the deficit gap in the next few years," she said in a note.

Goldman's "Top Trade Recommendations For 2015"

• Top Trade #1: EUR/$ downside via a one-year EUR/$ put spread.
• Top Trade #2: 10-year US Treasuries above 3% but not below 2% in mid-2015, through cap and floor spreads at zero cost.
• Top Trade #3: Long a Dec-2015 Eurostoxx 50 ‘bull’ call spread.
• Top Trade #4: Long US High Yield credit risk via 5-year CDX HY junior mezzanine tranches.
• Top Trade #5: Long an equity basket of EM crude oil importers (Taiwan, Turkey and India).
• Top Trade #6: Short CHF/SEK.
• Top Trade #7: Bearish Copper relative to Nickel, on supply divergence.
• Top Trade #8: Long US Dollar against a basket of ZAR and HUF.

Some more detail:

Top Trade #1: EUR/$ downside via a one-year EUR/$ put spread

Position for EUR/$ downside via a one-year 1.20/1.15 put spread for around a 4.5 to 1 potential maximum payout.

We forecast that EUR/$ will fall to 1.15 over the next 12 months, in equal parts a reflection of our Dollar bullish view and Euro bearish outlook. In particular, given that HICP inflation is unlikely to rebound in coming months, there is a chance that additional ECB easing, including possibly sovereign QE, comes sooner rather than later, setting the stage for EUR/$ to move meaningfully lower in the short term.

Top Trade #2: 10-year US Treasuries above 3% but not below 2% in mid-2015, through cap and floor spreads at zero cost

Buy a constant maturity 10-year US Treasury 3.00-3.50% ‘cap spread’ at zero cost by selling a corresponding 2.24-1.75% ‘floor spread’, both expiring on June 30, 2015.

We expect 10-year US Treasuries (TY10), currently yielding around 2.3%, to trade at or above 3.0% next June – one quarter ahead of the market-implied lift-off date for the Federal Funds rate. Our Sudoku model indicates that TY10 are already trading ‘expensive’ relative to our Economics team’s global macro outlook, and puts yields in a 3.10-3.50% range in the second half of next year. TY10 outcomes higher than 3.5%, implying a 5-year 5-year forward rate of over 4.0%, are unlikely over this horizon, especially considering that German Bund and JGB yields are still capped by the respective central banks.

Top Trade #3: Long a Dec-2015 Eurostoxx 50 ‘bull’ call spread

Go long Dec-2015 Eurostoxx 50 3150/3450 ‘bull’ call spread (buying the Dec-2015 3150 strike call and selling the Dec-2015 3450 strike call), currently at 101.5 (Bloomberg: SX5E 12/15 C3100 Index vs. SX5E 12/15 C3400 Index).

The (nearly) at-the-money 3150 call costs 170.6, while selling the 3450 call costs 69.10 (both priced as of the close on November 19), giving this position a maximum potential 2-to-1 payout. There are two routes by which European equities could move higher. In our central case, we see scope for a pick-up in Euro area growth in 2015, which we think is not reflected in market prices. At the same time, our European economists see a significant risk of a downside case in which activity and inflation disappoint. And, in that case, the ECB would move to more forceful QE, so initial asset market pressure would subsequently be reversed.

Top Trade #4: Long US High Yield credit risk via 5-year CDX HY junior mezzanine tranches

Go long risk (sell credit protection) on the 5-year CDX HY Series 23 junior mezzanine tranche (the 15-25% portion of the loss distribution), at a running spread of roughly 495bp per year for a target of 440bp (implying a potential return of over 700bp) and a stop at 580bp.

We think the recent underperformance of the US High Yield (HY) market should prove transitory. Our current best understanding for this underperformance is that a portion of the HY investor base remains burdened by recent losses on a number of crowded trades. Our choice of the junior mezzanine tranche, which provides a reasonable level of subordination for default losses, is partly informed by our long-standing ‘up-in-quality’ view on the HY market.

Top Trade #5: Long an equity basket of EM crude oil importers (Taiwan, Turkey and India)

Buy an equally-weighted basket of Taiwan (TWSE), Turkey (XU030) and India (NIFTY) stock market indices, priced at 100, with an initial target of 115 and a stop at 93.

The decline in crude oil prices has the potential to boost activity growth, particularly for oilimporting countries in Emerging Markets (EM). We propose an equally-weighted basket of several of the biggest EM petroleum importers. Each of the basket’s constituent countries adds elements that, in our view, fit with our global baseline macro outlook. Taiwan is an exporting economy that is exposed to a growing US, and has lagged the recent move higher in US equities along with the broader EM complex.

Top Trade #6: Short CHF/SEK

Go short CHF/SEK at the current spot of around 7.70 with a target of 7.00 and a stop at 8.10.

Euro weakness has been reflected in EUR/$ and EUR/GBP this year, to name just two Euro crosses, but EUR/SEK is a notable exception. In large part, this reflects the fact that inflation in Sweden is almost as low as in the Euro area, with recent dovish surprises from the Riksbank reinforcing the view that Sweden and the Euro area are suffering from the same ‘lowflation’ problem. We do not agree with this. After all, low inflation in the Euro area has a heavy structural component, as the internal rebalancing in the monetary union involves lower prices/wages in the periphery and the opposite dynamics in the core markets. In contrast, we see low inflation in Sweden as temporary and think it will move higher in coming months, in line with the Riksbank's October forecast.

Top Trade #7: Bearish Copper relative to Nickel, on supply divergence

Position for Copper underperformance relative to Nickel via Dec-15 LME futures, using equal notional amounts, for a potential 20% upside.

The short Copper/long Nickel trade highlights some important features of our set of market views for 2015 in the commodities space, particularly the theme of ‘supply differentiation’. Copper has entered a once-in-20-year supply cycle, resulting in above-trend supply growth, while Nickel supply continues to be constrained by the Indonesian export ban. This should result in rising (falling) visible inventories of Copper (Nickel) in 2015.

Top Trade #8: Long US Dollar against a basket of ZAR and HUF

Go long USD against a basket of HUF and ZAR at 100, with a spot target of 113 and a stop at 94. The ‘cost-of-carry’ for the basket is around 3.75% per annum, which we will account for in terms of our stop-loss throughout the year.

Our global outlook is consistent with USD strength against EM currencies. The strengthening US recovery should see US yields pushing higher from current levels, while EM rates stay suppressed due to the broader commodity-driven disinflation trends in the first half of the year. The compression in interest rate differentials should ultimately result in USD/EM strength. Two buckets of EM currencies are most exposed. The first bucket includes countries facing persistent imbalances. South Africa stands out: its external imbalance has remained large despite a weaker currency, higher yields and softer activity performance.

* * *

To summarize: short bonds (this time will be different), go long a decoupling America, short Europe because Draghi will do "whatever it takes" to crush Europe's political capital, er, artificial currency, and then go long risk on both inflation and deflation because as showed yesterday, in the current idiotic period which historians will laugh at one day, both inflation and deflation are bullish.

The only thing that prevents us from issuing a "do just the opposite" recommendation is that unlike previous years, Tom Stolper is not part of the recommending crew, thus there is some risk Goldman may actually get some of these right...

Citi Group sees nickel deficit at deficit 62,400 mt in 2014

The Senior Advisor of the Ministry of Economic Affairs of Indonesia, the largest nickel producing country in the world, Bambang Adi Winarso, confirmed that the ban  will continue to  remain if the  nickel metal has been considerably hiked after the ban. The Chief Market Strategist of Long Leaf Trading Group, which is located in Chicago, Tim Evans, stated that, the strength of US data, as well as the ban on nickel export by the Indonesian government will hike the price of nickel further, demand for the metal is also noted to be rising.

According to the forecast of Citi Group, which was broadcasted yesterday, the deficit of nickel this year would be 62,400 tonnes, at the same time the deficit in the year next would be much more at103,000 tonnes. The bank further asserted that, the nickel inventories in China, all are dried up, with the supply from the Philippines has also declined. The optimism on the price of nickel is still high.

 

Lead: Will it benefit from bitter cold in US, EU?

Snowstorm slammed some parts of the US, with temperatures plummeting, while central and northern Europe are expected to experience a colder winter this year. Will this extreme cold help lead prices repeat the rally seen in the last two winters?

The inclement weather in the winter of 2012 had boosted demand for ignition batteries and posed difficulty in scrap battery recycling. In response, LME lead neared a four-year high of $2,499 per tonne at the beginning of 2013. The same reason pushed the prices to a high of $2,289 a tonne in December 2013.

How about this year?

"We did see some positive signs," Zhu Rongrong, analyst with Shanghai Metals Market said.

LME cash-to-3-month contango fell to $3 per tonne last Friday, its lowest this year. Meanwhile, lead stocks in LME-approved warehouses have declined more than 10,000 tonnes so far this month. Physical lead premia in Europe and US posted noticeable rise in October, according to CRU data.

On the demand side, some European ignition battery makers have reportedly begun hoarding lead ingot against expectation for a colder winter. Besides, LMC Automotives said automobile sales in the US climbed 10% year-on-year January-September, and are expected to rise 5% throughout the year.

That being said, the road to a rebound may not be so easy.

"Something to take note of is news on smelter shutdowns, a part from the bitter cold, also contributed to the jump in prices in the past two winters," said Zhu.

Exide Technologies closed its 75,000 tpy secondary lead smelter in Frisco, Texas, in late 2012. Doe Run Company shut down its primary lead smelter in Herculaneum by the end of 2013. The smelter produced 110,000 tonnes of primary lead in 2013. Nonetheless, no closures have been reported thus far this year.

Moreover, a sharp rise in lead imports left lead supply ample in the US. The US imported 319,000 tonnes of refined lead in the first eight months, up 53% from a year ago. Now that traders are holding considerable stocks, goods availability in the country’s physical market will be subject to selling interest.