Today's Major Market Move: Natural Gas Futures Drop 10.3% in Tuesday's Session

We last talked about Natural Gas a little over a week ago when there was a 13% jump in one day. That move was precipitated by an announcement from Chesapeak (ticker: CHK) that they were cutting production in response to depressed prices. After dropping 5.7% yesterday and over 10% today, the price is getting very close to where it was at the time of the announcement.

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In that previous blog post we made the following comment:

The market surges 13% because CHK announces cuts and who benefits the most? CHK's competitors, that's who (e.g. EQT and RRC). Will EQT, RRC and the others follow suit? I think at the very least they will wait for if/when the current run fizzles out and the price starts tanking again.

The price has started tanking again so we're about to see if EQT, RRC and the other Natgas competitors are going to follow in CHK's path. The Wall Street Journal had an analyst quote regarding the issue of additional cuts:

"We did get a couple producer-shutdown announcements, but we haven't seen any further ones," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn. "We need to see additional producers shut [down], and signs that drilling activity's going to be cut back."

"Until we see either that or really cold weather," Mr. McGillian added, "the market's going to [be] mired in the low-price environment we're in."

With Chicago in the 50s yesterday, NYC hitting 59 less than a week ago and spring continuing to creep closer, the hope for colder weather to drive up prices must be fading fast.

Today's Major Market Move: Japanese 5 Year CDS Climb Over 40% Since Oct, 2011

We started tracking sovereign credit default swaps back at the end of October of last year. The worst performer (higher prices = higher default risk) since then has been Portugal, who many expect to be the next target after Greece finally figures out how much flesh to extract from its bond holders. A hair's width behind Portugal sits Japan.

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The situation in Japan is quite precarious. They've been experiencing various degrees of deflation for over the past 20 years, their stock market sits at 25% of its all time high, and the USDJPY cross is again approaching the record level of 75.31. Here's the chart of the currency:

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There were two major events recently that could lead to things getting substantially worse in Japan:

1. Japan reported its first trade deficit since 1981. This occurrence is in no small part due to the aforementioned strengthening currency. Here's more from CNN:
   

   For the first time in 31 years, Japan has recorded a trade deficit. In simple terms, that means Japan imported more than it exported last year. Now this is not that unusual for some rich countries: the U.S. has had a trade deficit since 1975, and yet we've grown. But the U.S. economy is not built on exports. Japan's economic rise on the other hand, has been almost entirely powered by exports.

2. Japan's largest pension fund, which is one the largest holders of Japanese government bonds, recently became a net seller of JGBs. More from the Telegraph:
   

   The median age is already the world's highest at 44.5 years and is rising relentlessly, with growing numbers of elderly people drawing down life savings. The household savings rate has dropped to 2pc from 16pc at the end of Nikkei boom 20 years ago. The country's largest pension fund has become a net seller of Japanese bonds to meet payout demands.

With Japan's Debt-to-GDP sitting at over 200%, Japanese officials don't need anything putting upward pressure on interest rates, such as oh... let's see... the selling of bonds. What's interesting and quite the conundrum is that even with CDS prices rising, interest rates are flat to slightly down. Here's the chart of the sovereign 5 year bond rate courtesy of Bloomberg:

Today's Major Market Move: Hungarian Forint Strengthens 9% Against the Dollar in 2012

When we last discussed Hungary's economy on Jan 19, 2012, it had just been announced that Hungary had agreed to the demands that the EU and IMF had been making regarding central bank independence and taxation (click here to see a list of posts for a more detailed history). At that time, Hungarian equities were up close to 12% for the year and the Forint had strengthened over 3% against the US Dollar. Fast forward almost two weeks to today. The positive trend has strengthened with the Hungarian stock market now up over 23% and the Forint up over 9% vs the Dollar, making it the best performing currency so far this year.

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The USDHUF cross has been on a wild ride since the beginning of 2011 with a 45% change from the lowest point to the highest point. Planning any kind of budget or coming up with a revenue forecast in Hungary must be quite the challenge.

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The primary motivation for the perceived continued improvement, as far as we can tell, is an expected positive response to the request for IMF funds. We're also seeing this same IMF plot line with Egypt. The IMF is a very popular organization these days so hopefully they get the extra money they've been asking for. From the Financial Times:

The International Monetary Fund has asked its member countries for an extra $500bn in firepower to combat the world’s spreading fiscal emergencies, which it estimates will generate demand for bail-out loans totalling $1tn over the next two years.

Today's Major Market Move: Greek Stock Market Up 16% in January

Greek equity investors appear to have a high level of confidence that there will be a positive outcome from the current debt negotiations going on between Greek authorities and investors in Greek bonds. As the negotiations have continued through the current month of January, investors have bid up the FTSE/ASE 20 Index 16% making it the third best performing benchmark equity index. Here's the top 10:

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Here are the details of the last status report of the negotiations, courtesy of Fox News:

Under the tentative agreement, announced Saturday, investors holding €206 billion in Greek bonds, or about $272 billion, would exchange them for bonds with half the face value. The replacement bonds would have a longer maturity and pay a lower interest rate.

The deal would reduce Greece's annual interest expense from about €10 billion to about €4 billion. When the bonds mature, Greece would have to pay its bondholders only €103 billion.

Even if the deal is successful there will be negative aftershocks.  Aftershock #1 will be the effect of writing down  €103 billion on the banks and other institutions that lent the money and aftershock #2, the need for certain companies that sold swaps, assuming of course that a CDS event is triggered, to have to pay out on those swaps. The total shock to the system could end up being larger than 103 billion, depending on how many naked swaps were transacted.

The Greek equity market is sending a pretty strong signal that the market insiders think A) the deal is going to get done and B) the ECB will step in to provide enough liquidity so that the reverberations are minimized. So assuming they are correct, the next big question that comes up is what will happen to the sovereign debt of the other PIIGS? They are all engaged in their own austerity programs and the motivation for sticking to those programs in their current forms will be significantly diminished.

If we take a look at the 5 year CDS prices for Portugal, Italy, Ireland and Spain, we see something quite interesting. The CDS market is showing optimism that there will be no chain reaction, except for the Portuguese swaps.

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The Portuguese swaps have surged another 35% since the middle of January and what we may be witnessing is the commonly used "pick off the next weakest member of the herd" strategy. The bearish bond investors will go after each country, one-by-one, in order from weakest to ('strongest' isn't the right word in this context) least weakest.

Now if the deal were to fall apart, be prepared for all kinds of craziness, and not the good kind.

Today's Major Market Move: Egyptian Stock Market Top Gainer in January

With a 13% gain this past week, the benchmark EGX 30 Index is now up 22% for January making it the best performing equity index of the 321 indexes that we track. The other Egyptian equity index, the Egypt Hermes Index, has also performed well and is sitting in third with an 18.1% gain. Here's the top 10:

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Of course when a stock market is as beaten down as Egypt's, the math makes it easier to have higher percentage gains on the way back up. Going back to the January of 2011, when the uprisings started, Egyptian equities were down as much as 40% (the odd shape of the charts is due to the market being closed intermittently during the uprisings).

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Analysts pointed to two positive developments that may have helped fuel the rally: 1) The relatively positive nature of the celebrations of the anniversary of the uprising. Some had feared that many would use it as an occasion to violently protest against the perceived sluggish pace of reform. 2) The IMF agreed to lower the interest rate on a loan that is still in the process of being negotiated. Here's more from the Financial Times:

Indeed, the stock market remains down by more than a third since the start of 2011, and Egypt is still facing an uphill battle to fund itself until international aid arrives. The country needs international “hard” currency loans to bolster its depleted currency reserves – much of which has been burnt away by supporting the Egyptian pound – and to pay for food imports.

The efforts to support the Egyptian Pound so far have been a success. It has only weakened 3.5% against the US Dollar since January, 2011; well below the worst performers like Belarus (177%), Syria (22%) and Bangladesh (19%). However it now sounds like the Egyptian authorities are running low on firepower and hence the request for IMF funds.

Speaking of the IMF, they are still projecting steady GDP growth, despite the economic disruptions. The GDP estimates in the following chart are courtesy of the IMF. If the projections are anywhere close, then the Egyptian equity markets could be a really nice bargain at these levels.

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Today's Major Market Move: R.R. Donnelley & Sons (ticker: RRD) Down 22% for the Year

With the surging popularity of tablet devices (Apple sold 15 million last quarter) and eReaders, now is not a good time to be in the traditional printing business. In fact, it may never again be a good time to be in the traditional printing business as we approach closer and closer to the long touted "paperless society". Printed materials of course are never going to go away completely, but Fortune 500 companies that make printed materials as a core function of their business probably will. Case in point: R.R. Donnelley & Sons (ticker: RRD) is down 22% for the year (worst in the S&P 500) and is down 76% from its high back in 2007. Here's the list of the bottom 10 performers:

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RRD is suffering from a similar evolution of technology as is Kodak (ticker: EK and which we last discussed on 1/4/2011), they're just a little further back in the cycle. One company that has done a good job of diversifying itself from the traditional printing business is McGraw-Hill (ticker: MHP). MHP is the parent company for S&P and I also think that MHP owns and produces more of the actual content than RRD. Another large company in the sector is Gannett (ticker: GCI) who has been performing better as of late, but like RRD, has struggled with the transition from print to digital. Here's a comparison chart of the three:

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Today's Major Market Move: Mexican Peso Strengthens 6.8% Against US Dollar in 2012

So far, 2012 has not been a good year for the US Dollar. Year to date, it has weakened against 98 out of 120 currencies. Then today the Fed announced that it doesn't plan to raise rates until after 2014 which is further out than previously expected and will add additional downward pressure. More from Reuters on the Fed statement:

Buying picked up after the Federal Reserve said it would keep interest rates near zero through at least 2014, which was longer than many investors anticipated. The actions were taken as a sign of the central bank's commitment to boost a sluggish economic recovery.

"What caught the market off guard was obviously the fact they are going to keep rates lower for longer," said John Canally, investment strategist at LPL Financial in Boston.

"This statement (on an inflation target) moves the ball slightly down the field" for possible more quantitative easing later, Canally said, referring to a type of monetary stimulus.

 One of the currencies that has benefited most from the dollar weakening trend is the Mexican Peso. The Peso had a rough 2011 but 2012 is shaping up to be much better. So far, it has been the third best performing currency when measured relative to the dollar.

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Goldman Sachs indicated today that it expects the Peso, along with the Canadian Dollar, to continue to strengthen and set a target of 12 for the USDMXN. This would mean the Peso would recover from all the weakening it suffered in 2011:

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And of course with the Fed continuing to maintain a loose monetary policy, we have to check in with the price of our favorite commodity, WTI Crude. It's been in a holding pattern since November of last year but with continued tension in Iran combined with today's announcement, don't be surprised to see it hit a new high in 2012.

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Today's Major Market Move: French 5 Year Credit Default Swaps Decline 21% in 2012

The best performing 5 Year sovereign credit default swaps in 2012 belong to France, which have declined 21% for the year. This makes it the best performing 5 year swap of the ones we track. Here's the top 10:

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Sovereign debt default risk has in fact come down across the board with only 2 of the 26 five year CDS that we track going up in price. The European situation has stabilized with several recent government bond auctions going better than expected, due in no small part to involvement by the ECB. Here's some commentary from Reuters on a recently completed Spanish Bond auction:

Borrowing costs fell sharply from the last time the same maturities were sold in mid-December - a day before the European Central Bank's pushed almost half a trillion euros in three-year loans into the bloc's banks.

At just 1.285 percent and 1.847 percent, respectively, the yields on the three-month paper was the lowest since last February and on the 6-month yield the lowest since June.

Spain has moved away from the sharp end of the euro zone crisis in recent weeks, its debt-servicing programme supported by the flood of cheap ECB money along with the bank's regular purchases of Spanish bonds on the market.

With the ECB still adding liquidity into the system, two key items to pay attention to are the EURUSD cross and the price of Brent. Here's a chart that shows the two going back to the beginning of 2011:

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Brent is priced in dollars so to give one an idea of what is happening with the price of fuel in Europe, one can look at the separation between the two charts. The higher the red line and the lower the blue line, the worse it is for petroleum based energy consumers in Europe. So if one takes the current percentage change in Brent (.13)  and the negative change in the EURUSD (.02), adds one to each and multiplies (1.13 * 1.02) = 1.15) one gets a rough estimate of the net effect of declining value of the currency along with rising oil prices: 15%.

This discussion allows us to segue into an announcement. Over the next week or so we will add the tracking of gasoline prices in USD for individual countries. The price at the pump of course is an amalgamation of a variety of costs: crude oil, taxes, transport, refining, etc. But we think this metric provides important insight into what is happening at the level of the individual consumer and rising fuel prices is perhaps the most insidious effect of currency devaluation.

Today's Major Market Move: Natural Gas Futures Jump Over 13% in Today's Session

It hasn't been very long since we last featured Natural Gas in our Major Market Move post (see 1/11/2012) but one can't help but take notice when a financial entity rises 13% on an otherwise calm trading day. NatGas futures have been dropping like a rock since December and as we referenced in that 1/11/2012 post, the stock price of Chesapeake (ticker: CHK) has been dropping with it. So it comes with little surprise that Chesapeake is the first company to announce that it is cutting production. From the Wall Street Journal:

Chesapeake said it will immediately curtail 0.5 billion cubic feet a day of gas production, reflecting about 8% of its total output. The company said it could cut production by another 0.5-billion cubic feet a day "if conditions warrant."

The company will also reduce dry gas drilling activity to about 24 rigs by the second quarter, down by nearly half from 47 dry gas rigs it currently has in use.

Chesapeake is just one producer out of many, and its immediate production cut affects less than 1% of total U.S. gas output of 80.1 billion cubic feet a day. But the move sends the signal that producers are willing to take steps to address the natural-gas glut that has depressed prices for months, analysts said.

As the cuts only represent less than 1% of total US gas output (and of course even less a percentage of global output), today's announcement doesn't exactly warrant a 13% one day move. But the market, being the forward looking animal that it is, expects cuts to be forthcoming from other producers.

Here's the most recent chart of front month natgas futures:

Click here to go to the live chart.

Chesapeake finds itself in the midst of a very interesting chess match at the moment. The market surges 13% because CHK announces cuts and who benefits the most? CHK's competitors, that's who (e.g. EQT and RRC). Will EQT, RRC and the others follow suit? I think at the very least they will wait for if/when the current run fizzles out and the price starts tanking again. If the price keeps rallying will CHK retract and if that happens, will the price immediately start crashing again? As an impartial observer, this one could be fun to watch.

Today's Major Market Move: Sears Holding (ticker: SHLD) Up 51% in 2012

It's been a solid year so far for US equities with the S&P 500 up 4% putting it at 31st out of 91 in the ranking of global benchmark equity indexes. The best performer in the S&P in 2012 is a little bit of a surprise: typical whipping boy Sears Holding Corporation sits at the top with a 50.5% gain. Here's the top 10:

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Let me point out that all ten of these stocks were well into the red in 2011 and some of them (BAC, SHLD, ODP) were the in top 10 worst performers. Here's the line chart in terms of % change from Jan 1, 2011 to Dec 31, 2011:

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So if this move in equities at the start of 2012 smells like it might be a bear market relief rally, it might not be just your imagination. It is hard to believe these heavily impaired stocks from 2011 have as a group all of sudden solved their problems.

Even with the 50% recent gain, SHLD is still down over 50% from the 2011 highs. As is evident in the following chart, earnings from the last three quarters have been big disappointments. Sears reports 2011 calendar q4 results on Feb 23rd and the company has typically performed well in that quarter. To this author, a meet or beat in this upcoming announcement would not be indicative of a turnaround and the real test comes in the remaining three non-xmas quarters.

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Today's Major Market Move: Seychellois Rupee Weakens 14% Against the US Dollar Since October

With a population of only 86,500, the Seychelles do not typically come up when talking about global economic trends. However we still like to talk about the smaller countries since they can sometimes foreshadow economic difficulties in their larger brethren. The Seychellois Rupee has been under some stress since their peg was broken against the US Dollar back in September of last year. It has weakened almost 14% and has been the second worst  (behind Syria which is dealing with an uprising and economic sanctions) performing currency since Oct 1, 2011.

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Here's the line chart for the US Dollar / Seychellois Rupee cross going back to the beginning of 2011. One can see the peg that lasted until September, 2011 and since then it's been a steady climb higher.

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We haven't yet been able to identify any reasons for the weakness of the currency or for the breaking of the peg. Back in 2009 they started receiving assistance and guidance from the IMF. From a GDP growth perspective, the IMF involvement has been positive.

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Today's Major Market Move: TSE Mothers Index Down 8.1% in January

Yesterday when we were talking about Hungary's stock market we brought up how two thirds (61 out of 91) of global benchmark equity indexes are in positive territory so far this year. If we expand our view to all 321 equity indexes that we track the percentage is even better with 83% in the black. One of the unfortunate 17%, and the second worst performer of all 321 indexes, is the Japanese TSE Mothers Index.

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Like the #1 entry in that list, the Chinese ChiNext Price Index, the TSE (Tokyo Stock Exchange) Mothers Index is also composed of high growth / high risk companies. So regardless of direction, it isn't terribly surprising to see both of those indexes at either extreme of the list.

If we look at the line chart, we see that the Mothers Index is sitting ominously at the March 2011 Tsunami lows.

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If we add GDP growth and additional equity indexes to the above chart, the picture remains bleak.

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With a debt to GDP level of over 200% and a stock market that currently sits at 25% of its high from 20 years ago (among other problems), the economy in Japan faces someone of the toughest challenges on the planet. The Japanese stock market in particular should be a flashing red light to those U.S. investors convinced of the inevitability of a U.S. stock market bounce back.

Today's Major Market Move: Hungarian Equities Up 11.9% in 2012

Global equity markets are off to a pretty good start in 2012 with 61 out of 91 benchmark equity indexes in the green. Argentina has been the best performer out of the gate with a 17% gain (we last referenced Argentina's stock market on 1/6/2012). Coming in second place at 11.9% is a country whose economy really struggled in 2011: Hungary.

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Hungary came up as the subject of our Major Market Move post several times in 2011 but unfortunately it was because of either a declining stock market or a weakening currency. Here's a comparison of the Hungarian Traded Index with the US Dollar / Forint cross going back to the beginning of 2011.

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There's a fairly strong inverse relationship being exhibited and that has continued to be true in 2012 with the currency strengthening as equities improve.

Hungary had been involved in a stare-down competition with the IMF and the EU over the past few months. In a nutshell, the Hungarians had put in place some economic policies that the IMF and EU were not happy with and the two organizations were threatening to withhold additional financial assistance unless changes were made (for those interested more info and a notion of the timeline can be found by reading these posts: 12/22/2011, 12/30/2011 and 1/5/2012).  Today from the Wall Street Journal we got the headline that Hungary has acquiesced. We will update this post when details become more generally available.

Today's Major Market Move: Brazilian Real Strengthens 5.5% Against the Dollar this Month

Despite the fact that there have been expectations of an interest rate cut for some time now, the Brazilian Real has strengthened 5.5% against the US Dollar this month. The Real has been the best performing currency relative to the Dollar in 2012.

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Earlier today the expectations were confirmed and the announcement was made that the Brazilian central bank was cutting the benchmark interest rate by half a point. The consensus interpretation of the wording of the announcement is that there will be additional easing. Here's some commentary from the Wall Street Journal:

The brief post-meeting statement was identical to the language in the previous decision in December. The central bank reiterated its view that "moderate adjustments" to interest rates would contribute to bringing down inflation; the market has in the past interpreted that phrase as suggesting the likelihood of another 0.50 percentage point cut at the next meeting in March.

With that phrasing unchanged, "the reading from the market will be that the next cut will be 50 basis points, too," said Alfredo Barbutti, an economist at Liquidez Brokerage in Sao Paulo. "If they wanted to send a different signal, they would have taken advantage of this to start doing it."

Right now for most countries, equities react positively to a weakening currency. But because Brazil has been dealing with a nagging inflation problem, over the last six months the correlation has been opposite with equities rising when the currency strengthens. Here's a chart of the benchmark Brazilian equity index, the Bovespa, compared to the US Dollar / Brazilian Real cross.

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Today's Major Market Move: Shenzhen G-Shares Index Up 5.1% in Tuesday's Session

A mere two days after we last talked about the Chinese equity market, we are heading back there again for today's Major Market Move topic. China released Q4 GDP data earlier today which turned out to be better than expected (8.9% vs 8.7% expected). Not surprisingly, Chinese stocks reacted very favorably to the news. We track 13 Chinese equity indexes and they ended up being the top 13 performers out of all 321 equity indexes that we track globally.

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The best performer overall was the Shenzhen G-Share index with a 5.1% gain. The G share index represents companies that the Chinese government is the process of transitioning from being government owned to shareholder owned. Even with today's gain, the G-Share index is still well off of its 2011 high (as are all the other Chinese equity indexes).

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We're going to go back to the Chinese equity / GDP growth comparison chart that we also used two days ago.

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We see that China's GDP is expected to grow another 150% over the next 4 years which means that they will have to average close to 11% growth per year. Right now the economy is slowing, (8.9% growth this quarter vs 9.1% last quarter), so in order to meet expectations for the next four years, they have to reverse the current trend and improve the GDP growth rate by close to 2%. Or, what I would consider the more likely possibility, estimates are going to have to be adjusted downwards.

Today's Major Market Move: Portugal 5 Year CDS Rise 8.8% in Monday's Session

U.S. financial markets being closed today due to the Martin Luther King holiday seemed to have a dampening effect on the volatility of the rest of the markets around the world. One place where there was a sizable move was in the credit default swap market where Portugal 5 Year swaps climbed 8.8%. The Portuguese swaps have reached new highs since we began tracking CDS at the end of October last year.

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The jump was due to the fact that S&P downgraded Portuguese bonds to junk status on Friday and now all three of the main rating agencies have Portugal's bonds rated below investment grade. There wasn't much of a spillover effect into the rest of Europe or even the other PIIGS countries. Here's the list of the top 10 gainers in the sovereign CDS market:

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There wasn't a proportional spillover into Portuguese equities either, which dropped just 1%. I would expect that the largest market impact is felt when the first rating agency downgrades a country to junk. By the time the third rating agency gets around to doing it, as in this case,  it's already yesterday's news. Portuguese equities are still holding above the 2011 lows but have been showing some weakness in 2012.

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Today's Major Market Move: ChiNext Price Index (Chinese Equity Index) Declines 26% in Past Six Weeks

Chinese equities continue to show significant weakness and since December 1, 2011, the worst performing equity index on the planet (of the ones we track) has been the ChiNext Price Index. It is down 26% in the past month and a half, and down 45% from its 2011 highs.

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The ChiNext Price Index (which we have mentioned previously on 12/3/2011 and on 6/25/2011) is comprised of high growth/high risk companies so it is not surprising to see it near the top of the list when equities are performing well and near the bottom when they aren't. But as far as Chinese equities in general go, it is not just the ChiNext index that is faring badly. Of the 10 Chinese equity indexes that we track, 9 of them are down by more than 20% since the beginning of 2011.

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Let's also take a look at equity performance compared to GDP growth.

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That chart shows us something quite remarkable. While GDP has grown over 150% since 2007, the Shanghai  SE Composite Index, the benchmark equity index which is the best representation for overall equity performance in China, is negative. One scenario is that Chinese equities were already significantly overvalued in 2007 and are simply returning to a more fair valuation. Another possibility is that we will see huge gains in the Chinese stock market as stocks catch back up with GDP growth. Yet another is that we will see Chinese GDP growth significantly underperform future estimates.

Today's Major Market Move: Icelandic Krona Weakens 2.4% Against the Dollar in January

As the title states, the Icelandic Krona has weakened 2.4% versus the US Dollar this January. This fact in and of itself isn't all that remarkable and there are eight other currencies that have performed worse this month:

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What is noteworthy however is the fact that the USDISK cross has broken out well past its 2011 highs and continues to surge higher:

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Lets take a look at our "Fringe" European currency chart that we like to use from time to time. It shows the currency crosses for many of the countries that lie just outside of the Eurozone, some of which have been showing significant weakness over the past six months.

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Over the past three months the relative position of the currencies haven't changed but as a group they continue to weaken. The IMF has already had to provide support (or is in the process thereof) to three of the countries: Iceland, Ukraine and Hungary. The currencies of Turkey and Poland are showing signs of trouble and if those countries were also to require help, the IMF's resources are really going to be spread thin, especially considering that they are most likely going to have to save firepower for Spain and Italy.

Today's Major Market Move: Egyptian Stocks Down 47% Since January 2011

As Egypt works to establish a new form of governing in the wake of the ouster of Mubarak, Egyptian equity markets have behaved skittishly with many investors preferring to sit out the storm. Stocks have decline 47% Since the beginning of January 2011 and the Egyptian market has been the third worst performing overall:

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Cronyism and corruption were rampant under Mubarak and there was hope that these drags on the economy would be greatly reduced now that he is gone. However, as many had expected, the Islamists are making a strong move to fill the power vacuum and unfortunately the historical economic track record for Islamic regimes leaves some room to be desired. Despite the challenges, out of the countries in its immediate vicinity Egypt is still projected to have the second highest GDP growth over the next 4 years (second behind Libya and its massive oil reserves).

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Today's Major Market Move: Syrian Pound Weakens 4.6% Versus the Dollar this Week

Economic hardships have a tendency to motivate people into action that would otherwise remain passive bystanders. The ultimate undoing of the current Syrian regime may very well be caused by this:

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For the uninitiated, that's a chart of the US Dollar / Syrian Pound cross. Up until September, 2011 the Syrian Central Bank kept the Syrian Pound pegged to the Dollar in a fairly narrow band.  After September, strains became evident as the central bank allowed the currency to break outside of the band (or one could argue they were forced to by the markets).

We previously posted about Syria's currency on December 10, 2011 and at that time we noted how the black market rate for Syrian Pounds had been quite a bit higher (around 60 Pounds/Dollar) for some time. As the protests and international sanctions took their toll on the economy, the pain was reflected in the de facto exchange rate, even if the government and central bank have been slow to officially acknowledge the effects. The growing desperation of the government is becoming more evident as the regime attempts to exert more strict control over currency flows. From the Syrian Enterprise Business Center:

The Central Bank of Syria has increased the selling prices of the Syrian Pound relative to the US Dollar to above 57 Pounds as it seeks to clamp down on the black market...

At the same time, the Central Bank is trying to decrease demand for foreign currencies. Last week it asked all state administrations to provide it with a list of the fees, taxes and other payments they collect in foreign currencies from households, businesses and other parties, and to justify why these payments are not made in the local currency.

The objective of the decision is to trace all the operations done in foreign currencies and try to reduce them so that in turn demand for foreign exchange in the market diminishes.

The Central Bank has already limited significantly the amount of foreign currencies it makes available to private individuals and companies.

Until last October the Central Bank provided foreign currencies to all import traders that would require them to finance their imports, through the local bank these traders deal with. In October, the Bank announced that it would stop doing so except for a few key food items.

Today's Major Market Move: Natural Gas Futures Down 10% This Week

Natrual Gas Futures, which were already down 36% from the beginning of 2011, have declined another 10% this week. The "Widowmaker" strikes again. Natgas prices broke through the psychologically important 3 level at the end of last year and are well on their way towards a 2 handle. Here's the line chart:

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What's really remarkable is how natgas prices have disconnected from all other energy related commodities.

Click here to go to the live chart.

One excuse for the recent downturn  is the often recited "warmer than expected winter". I'm not sure how Heating Oil and Gas Oil correlate to winter weather but as one can see from the above chart, the prices of those two commodities have been barely affected by the unseasonably warm temps.

The next chart shows natgas alongside three of the major natgas producers

Click here to go to the live chart.

Chesapeake has tracked natgas prices almost exactly whereas the other two, while they definitely have been affected by the recent downturn, have been more disconnected from natgas over the longer term. We will keep an eye out to see if that spread between RRC, EQT and natgas eventually closes back down again.