Many of the Middle East hot spots have shown more violence over the weekend. There was new violence in Gaza and Beirut. There were cross border attacks on Lebanon from Syria as well. The market is apparently ignoring reports on Sunday that Iran was interested in resuming negotiations with the P5+1 on its nuclear issue. Earlier reports had that Iran was to hold talks with the U.S. one -on-one, but they were later denied.

There is also a report out of China asking its prominent think tanks to come up with a plan to give more incentive for private industry to compete with the state run businesses.  They are asking the economists to engineer a more productive way to stimulate the economy. Moreover Fitch reported that China will avoid a hard landing.

We thought that some of the fear premium would come out of the oil markets with the early Sunday news.Moreover, we viewed the last week summit of European leaders as another dismal failure to address the serious banking issue there. However, the elections in Spain have shown that Rajoy’s support remains and for that the European markets are relieved. However, the rift between Germany and France is widening as are internal rifts between the north and south in Europe and in the individual countries such as Spain and Italy.

We continue to feel that without a substantive bounce there is likely to be margin liquidation later in the say. Earnings are pressuring the equity markets and as that slides so too will that other risk markets.

CRUDE: Hi: 9119; Low: 89.85

we were bearish coming into Monday. We remain so as the calendar spreads are pointing that way. Yes, Dec can rally back to the 92.00 level with a break of 91.60.  If our model looking for another leg to the downside is correct, Dec will fail to significantly penetr4ate the 92.20 level.The minor upside pivot is 92.67. The key upside pivot is 93.05. This will be a two way market for Monday. We look to sell the strong rally at the 92.00 level  looking for a test of 90.00.

BRENT: 110.91; Low: 109.47

Lebanese fighting has popped this market off its overnight lows made at the early Europe open. However, for this rebound to get traction will require Dec to better 111.60. Otherwise this bounce is a dead cat bounce that the resumption of the Buzzard field has capped. The term structures are weakening in this market signifying there is enough crude available. Moreover, thought Iran has denied the reports of a U.S. negotiating, but it was the NY Times reporting the talks. It is likely that an administration Sherpa released the news to bolster the President’s chances at tonight’s debate. Where there are denials there is smoke and where there is smoke…well.We are a seller of the rally.

RBOB: Hi: 2.7200; Low: 2.6933

It appears likely that Nov has completed the leg down from the 2.9925 area with the marginal new low overnight. This will allow Nov to retrace its huge cycle to the downside. While this leg may be completed, the entire wave down appears to have more to come. Nov will have minor resistance at 2.72 to 2.7250. The minor upside pivot is 2.73.  The key upside pivot is 2.7875. We are a seller of the rally. A very weak market will fail to punch through the minor upside pivot. that will signal a potential new low and a test of 2.65 to 2.6450. The latter level is a huge pivot that the bulls will HAVE to protect. it is the home of the 100 DMA. A close below that level will seek the 2.50 area.

DIST: Hi: 3.1491; Low: 3.1100

Nov has bounced off trend support at 3.1070 by holding 3.11. However, despite the cooler weat5her that is eve3ntually due, much may have already been discounted in the run up to the 3.2650 area. At least that is our model. Nov is likely to have minor resistance at the 3.1500 to 3.1550 area. The minor upside pivot is 3.1610. The key upside pivot to the intraday chart is 3.23. it is with a break and settle below 3.1050 that Nov is signaling a continued drop to 3.0550 to 3.05 . We are viewing this as a two way market, but one has to trade the extremes. However, we will say that a failure of Nov to better 3.1550 is considered a weak market.

GASOIL: Hi: 991.00; Low: 979.50

Although Nov has broken the downside pivot at 987.00, it appears as if one leg to the downside has been completed. This suggests that a bounce is likely, but not a new high if our read is correct. Nov will signal a stronger rebound with a break above the minor upside p0ivot of 990.00. The key upside pivot is 1007.00.We look for resistance at 1002.50 to 1003.00. The downside extension pivot is 979.00. Busting that level will lead Nov down to 971.00 to 970.00.

NAT: Hi: 3.639; Low: 3.595

An extended period of dry warm weather for the mid-Atlantic States will keep demand low for the short-term. We view the move up to 3.65 as completing a leg to the upside. If this model is correct, Nov will not break the key upside pivot of 3.65. it will have a minor downside pivot of 3.56 that will confirm a very short-term top. This will suggests a correction of the move up from the 2.645 area on the continuation chart. A break of 3.56 on a daily settlement basis will eye the key downside pivot at 3.40. We look for this level to hold on a retracement.

NEWS

China cabinet seeks ambitious economic reform agenda: advisers

(Reuters) – China’s top leaders have asked policy think-tanks to draw up their most ambitious economic reform proposals in decades that could curb the power of state firms and give more freedom to the setting of interest rates and the yuan currency.

But after almost 10 years of delay to painful structural reforms by the outgoing leadership, some of the authors of the proposals told Reuters they fear a nascent rebound in economic growth could derail the recommended agenda.

“China is approaching a stage when the government must embrace more fundamental reforms,” said Shi Xiaomin, vice president of the China Society of Economic Reform, a think-tank under the National Development and Reform Commission, the top economic planning body.

China’s once-in-a-decade leadership change will be finalized next month at the ruling Communist Party’s 18th congress. Vice President Xi Jinping is set to take over from Hu Jintao as president and Li Keqiang will replace Wen Jiabao as premier at the meeting, which opens on November 8.

The congress convenes as the economy heads for its weakest annual growth rate in at least 13 years after three decades of near 10 percent annual expansion in the wake of sweeping reforms launched by former leader Deng Xiaoping.

Reuters interviewed five policy advisers involved in drawing up the reform proposals. They said the order for the agenda came from members of the State Council, or cabinet, although they declined to give specifics for fear of repercussions.

Significantly, planning sources said cabinet members had signaled an interest in seeing proposals from policy advisers outside Beijing, in the provincial hinterland, implying that a nationwide consensus is being sought on the content and timetable for painful structural reform.

High on the list drawn up by the advisers is how to contain the government’s meddling in the economy and clip the wings of more than 100,000 state-owned enterprises (SOEs) which enjoy enormous privileges, including preferential access to bank lending and government contracts.

Other reforms include allowing the market to set the cost of bank credit, land and various natural resources.

Credit is currently basically allocated by the central government. It tells state-backed banks how much to lend and when – mainly to other big state-controlled businesses and projects. Meanwhile all land and basic resources are owned by the state, with private ownership limited to temporary leased rights to usage.

Analysts say reform of these two areas would bring fundamental change to China’s economic structure, even more so than making the yuan currency more convertible – also on the table as part of a package of proposals to liberalize capital markets and boost the yuan’s use in global trade settlement.

Reform to China’s complex tax structures, under which the central government commands the lion’s share of receipts while local governments do most of the spending, is needed if serious progress is to be made cleaning up local government debt that stood at 10.7 trillion yuan ($1.7 trillion) at the end of 2010.

“I think a consensus on reforms has been formed at the central level, even though people may have different considerations on when and how to implement reforms,” said Wang Jun, senior economist at the China Centre for International Economic Exchanges, a top government think-tank in Beijing.

UNFINISHED BUSINESS

Experts say Chinese leaders must unlock fresh growth potential and put the economy on a more sustainable path to avoid the “middle-income trap”, where wealth creation stagnates as market share is lost to lower cost competitors and the attainment of high-income country status stays out of reach.

The World Bank says China’s GDP per capita was $5,500 last year, versus $22,400 in South Korea, $34,500 in Hong Kong and $46,200 in Singapore, which all avoided the middle-income trap.

There has been soul searching among Chinese academics about the 4 trillion yuan ($640 billion) stimulus package unveiled in late 2008, which led to excessive investment in white elephant projects, created mountains of local government debt and sent house prices rocketing in big cities.

The stimulus helped state-owned firms stage a comeback at the cost of private businesses.

SOEs have repeatedly fought off Beijing’s plans to get them to pay higher dividends to state coffers and have sought to delay reforms on income distribution systems, which could imply capping hefty wages in monopoly sectors, government sources say.

The reforms aim to require SOEs to pay more dividends to the government to meet a funding shortfall in social welfare.

“We could see serious problems if we don’t reform,” said Zuo Xuejin, head of the Institute of Economics at the Shanghai Academy of Social Sciences, which advises the local government in China’s financial hub.

Still, some government advisers fear signs of a recovery in the economy could ease the pressure to act.

China’s annual economic growth slowed to 7.4 percent in the third quarter from 7.6 percent in the second – the seventh consecutive quarter of slower expansion, but government officials have flagged signs of a modest rebound in September.

Industrial production, retail sales and investment data were all slightly ahead of forecasts in September and quarter-on-quarter GDP growth was strong, suggesting the worst may be over and the world’s No.2 economy will pick up in the final quarter.

“They may have to change if there is an economic crisis, but they may choose to muddle through if the economy recovers,” said an economist with a top government think-tank in Beijing, who requested anonymity due to the sensitivity of the issue.

TRAJECTORY OF CHANGE

Past changes tend to support the anonymous economist’s view.

Deng Xiaoping launched economic reforms in the late 1970s to rescue an economy on the verge of collapse after Mao Zedong’s disastrous Cultural Revolution.

He made his famous tour of southern China in 1992 to jumpstart the second stage of reforms when the economy nosedived in the aftermath of the 1989 Tiananmen Square crackdown. And sweeping market measures spearheaded by former Premier Zhu Rongji were introduced after the Asian financial crisis in the late 1990s.

Chinese leaders have acknowledged that three decades of 10 percent average annual GDP expansion are over and that the economy needs fresh drivers, analysts say.

In February, the World Bank said in a report with the cabinet think-tank, endorsed by presumptive-premier Li, that Beijing must implement deep reforms to avert a crisis.

The World Bank said China’s annual economic growth may slow to 5 percent a year by 2026-2030, from 8.5 percent in 2011-2015.

The mainstream view in Beijing is to blame the global financial crisis for China’s slowdown, which also reflects diminishing gains from past reforms and market opening spurred by China’s entry into the World Trade Organisation a decade ago.

Even fresh reforms may not deliver a swift turnaround.

“The easiest part of the reforms were carried out in the past 30 years, so we don’t have many areas where reforms can deliver quick results,” said Zuo at the Shanghai think-tank.

Brent climbs towards $111 on Middle East tension

(Reuters) – Brent crude oil climbed towards $111 per barrel on Monday as fighting in Beirut and Gaza raised fears for the security of fuel supplies from the Middle East, helping stem a four-day decline in prices.

Brent lost 4 percent last week on global economic uncertainty. But growing violence in parts of the Middle East, which supplies a third of the world’s oil, has helped counter concerns over weaker fuel demand.

Brent crude for December delivery rose 33 cents to $110.47 per barrel by 1055 GMT, recovering from a session low of $109.47, its weakest since October 4.

U.S. oil was up 48 cents at $90.53, also bouncing back from an intraday trough of $89.49.

Tensions surrounding Syria supported oil prices due to fears that violence could spread to other parts of the Middle East.

Tiny Lebanon, with its combustible sectarian mix, is being dragged into the Syria crisis with its rival Shi’ite and Sunni Muslims fighting on opposite sides.

Gunmen exchanged fire in Beirut after the state funeral of an assassinated Lebanese intelligence chief ended in violence when angry mourners broke away and tried to storm the offices of Prime Minister Najib Mikati.

Lebanon’s army said on Monday it would take “decisive measures” to prevent chaos in areas of high tension.

“Lebanon has now become a new seat of unrest,” said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

“(The tensions) destabilize the whole region and therefore have an impact on oil transportation, especially the oil from northern Iraq, which is transported through pipelines over the crisis region,” Fritsch said.

Elsewhere Israeli forces killed two Palestinian militants during an incursion in the northern Gaza Strip on Monday that touched off clashes with gunmen from the governing Hamas movement, local officials said.

“NO SHORTAGE”

Fritsch said investors were also buying back oil after prices had fallen four consecutive sessions, supporting prices.

Brent crude’s premium to West Texas Intermediate futures, measured between December contracts, narrowed to around $20 from more than $24 last week, the widest in a year.

But geopolitical tensions are playing out against a weak global economic backdrop that weighed down other commodities on Monday.

London copper touched a one-month low after disappointing earnings from leading U.S. companies and a bigger-than-expected fall in Japan’s exports dented appetite for riskier assets. <MET/L>

While recent employment and housing data from top oil user the United States have been relatively upbeat, the economy of the world’s second-largest oil consumer China is, at best, on a tepid road to recovery.

The Chinese economy could stage a feeble rebound in the fourth quarter on higher public infrastructure spending, although growth will remain lethargic through 2013, a Reuters poll of economists showed.

Ample supply of oil, coupled with this bleak economic outlook, could pose a risk to oil prices.

“There’s no shortage at the moment. From a fundamental point of view, Brent should soften to around $100,” said Ken Hasegawa, commodity sales manager with Newedge in Tokyo.