TradeTheNews.com European Market Update: Quiet end to 2011 but sovereign concerns expected to heat up fast next year
Friday, December 30, 2011
TradeTheNews.com European Market Update: Quiet end to 2011 but sovereign concerns expected to heat up fast next year
***Economic Data*** - (EU) ECB: â‚¬17.3B borrowed in overnight loan facility v â‚¬4.3B prior; â‚¬445.7B parked in deposit facility (second highest on record) vs. â‚¬436.6B prior - (RU) Russia Narrow Money Supply w/e Dec 26th (RUB): 6.81T v 6.68T prior - (FI) Finland Oct Final Trade Balance: -â‚¬621M v -â‚¬605M prelim - (UK) Dec Nationwide House prices M/M: -0.2% v 0.0%e; Y/Y: 1.0% v 1.5%e - (TH) Thailand Nov Current Account Balance: -$136M v -$739Me; Total Trade Account Balance: $0.2B v $1.0B prior; Overall Trade Balance: -$1.5B v -$1.9B prior - (TH) Thailand Nov Business Sentiment Index: 39.0 v 36.7 prior - (CH) Swiss Central Bank publishes Balance Sheet Data: Currency holdings CHF261.9B vs. CHF261.8B prior - (ES) Spain Dec Preliminary Consumer Price Index Y/Y: 2.4% v 2.5%e; EU Harmonized Y/Y: 2.3% v 2.5%e - (TR) Turkey Nov Trade Balance: -$7.5B v -$7.9Be - (SE) Sweden Oct Non-Manual Worker Wages Y/Y: 2.3% v 2.2% prior - (EU) Dec EuroCoin Indicator M/M: -0.20 vs. -0.20 prior - (HK) Hong Kong Nov M2 Money Supply Y/Y: +3.6% v -3.7% prior; M3 Money Supply Y/Y: +3.5% v -3.8% prior - (ES) Spain Oct Cash Balance: â‚¬27.2B v â‚¬31.5B prior month - (CZ) Czech Nov Money Supply Y/Y: 5.1% v 4.3% prior - (IT) Italy Nov PPI M/M: 0.2% v 0.1%e; Y/Y: 4.5% v 4.4%e - (MA) Malaysia Nov M3 Money Supply Y/Y: 12.4% v 11.4% prior - (HK) Hong Kong Nov Govt Monthly Budget Balance (HKD): -1.5BB v +28.0B prior - (ES) Spain Oct Current Account: +0.5B v -â‚¬3.6B prior - (UK) Q3 BoE Housing Equity Withdrawal: -Â£8.6B v -Â£9.0Be - (GR) Greece Oct Retail Sales Value Y/Y -8.1% v -3.7% prior; Retail Sales Volume: -10.8% v -6.5% prior - (PT) Portugal Nov Industrial Production M/M: -1.6% v 0.6% prior; Y/Y: -2.1% v 0.4% prior - (PT) Portugal Nov Retail Sales M/M: -2.6% v -3.0% prior; Y/Y: -9.2% v -9.7% prior
Fixed income: - (IN) India sold total INR150B vs. INR150B targeted in 2017, 2024, 2027 and 2041 bonds
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** ***Notes/Observations*** - China Dec Final HSBC Manufacturing PMI revised slightly better but remained below the pivotal 50 level - Hungary's Parliament expected to pass several key legislative matters to the ire of EU officials - Wishing all TTN clients a healthy, happy and prosperous New Year
Equities: FTSE 100 -0.25% at 5,552, DAX -0.10% at 5844, CAC-40 flat at 3128, IBEX 35 +0.20% at 8503, FTSE MIB +0.20% at 14,940, SMI +0.40% at 5917
-European equity indices open the session higher, amid gains in most banking and mining shares. However, since the open banks have pared their advance following the sharp rise in the use of the ECB's overnight borrowing facility and underperformers include French banks, as the French/German 10-yr yield spread has widened on the session. For the entire 2011, major European indices are on track to end the year lower (Approximate YTD performance of EU indices: - Shares of Blacks Leisure [BSLA.UK] are lower by more than 5%, despite a press report which said that there are more than 3 bidders for the company's assets. BG [BG.UK] has gained more than 1%, after confirming that the Brazilian Guara oil field was declared commercially viable. Portuguese bank, BCP [BCP.PO], has gained more than 6% on renewed speculation that Chinese investors could acquire a stake in the company. Swiss refiner Petroplus [PPHN.SZ] has swung between gains and losses. Earlier in the session, Petroplus said that it would start shutting down its Petit Couronne refinery (approx 162K bpd) in France early next week, as the facility could soon run out of crude supplies. A separate report said that the refiner is believed to have entered financing talks with a group of banks.
Speakers: - German Fin Min Schaeuble commented that he ruled out euro zone break up and wouldl have risk of contagion under control in EU crisis in next 12 months. He added that the euro was a stable currency and that Europe was doing all that is possible to maintain confidence. He was concerned that the early 2012 refinancing requirements for EU was not trivial and reiterated that he saw no indications of a credit crunch. Lastly he reiterated ESM active in middle of next year. - Spain's government could seek to reduce government spending by 30% - Bank of Korea (BoK) Gov Kim commented that inflationary expectations continued to be high and needed to pay closer attention to inflation target - Greece was said to be in discussions with Troika regarding asset backed bonds in relation to Greece possibly using state-owned assets as collateral for new bonds. The 5-yr "privatization bonds" would allow Athens to convert certain public debt into a type of asset-backed bond. - Poland Central Bank Zielinska-Glebocka commented that the PLN currency was a bit undervalued and should track the EUR in 2012. She also noted that Zloty currency volatility was a big problem but central bank intervention had been successful and were performed on a sporadic basis. She saw the risks as balanced for both the Polish inflation front and economic activity. Lastly she did not see any monetary policy rate moves in early 2012 (Jan Feb period) - Japan Finance Min Azumi reiterated that Japan planned to do what it could to support Europe, but wanted EU officials to solve their debt problems. The minister also commented that he was confident that Japan's domestic demand would pick up in 2012 And that the Japanese Govt aimed to agree on comprehensive tax plan in early next year. - Japan Finance Ministry (MOF): Confirms that it did not intervene in the fx market in Dec
Currencies: - A very quiet European session was observed ahead of calendar year-end. The Euro maintained a soft tone but remained just above its 2011 low of 1.2858 while EUR/JPY cross managed to hold above the 100.00 level. - Markets might react to Hungary Parliament once its passes its Central Bank law that the EU believed would harm the independence of the central bank and jeopardize the EU/IMF precautionary loan discussions - The new year will likely bring the focus of European sovereigns back onto the front burner with expectations that the major rating agencies might formally announce any changes to previously issued warnings on multiple countries in the region.
Political/ In the Papers: - According to the Telegraph, the German government adviser Beatrice Weder di Mauro refused to rule out a break-up of the euro zone. Di Mauro, a member of the German Council of Economic Experts, said that while the collapse of the single currency would be bad for everyone involved, it cannot be completely excluded. Note the comments were from a Bild interview which was originally published on Thursday, Dec 29th, in which di Mauro suggested that Germany's 2012 GDP growth could be below the government's 1% target. - Ambrose Evans-Pritchard stated that the EU money supply data is flashing warning signals about the economic outlook. The recent contraction in the M3 money supply has raised concerns about a potential credit crunch. The money supply data signal the EU economy will move into a recession. The contraction in the money supply is more acute among the peripheral countries. The money supply is now contracting as it did in 2008 when Lehman Brothers failed. - In a poll conducted by the BBC, a significant majority of economists see a European recession in 2012. Approximately 20% said the euro zone would not exist in its current form, while a majority put the possibility of a euro zone break-up in 30-40% range. The polling data included 34 UK and European economists who advise the Bank of England on a regular basis. - Following yesterday's Hungarian bond auction, the BBC reported that the Hungarian government abandoned part of its planned debt auction, cancelling its three-year auction due to the range of yields offered was seen as too wide. Hungary is already in discussions with the European Commission and the IMF regarding refinancing. Back in 2008, when Hungary abandoned an auction, it was eventually forced to seek assistance from the IMF.
***Looking Ahead*** - (BE) Belgium Nov YTD Budget Balance: no est v -â‚¬18.2B prior - 6:30 (IN) India Q3 Current Account Balance: -$17.0Be v -$14.1B prior - 7:00 (ZA) South Africa Nov Budget Balance (ZAR): No est v -9.9B prior - 8:00 (PL) Poland Central Bank (NBP) Dec Inflation Expectations: No est v 4.2% prior - 8:00 (PL) Poland Q3 Current Account: -â‚¬6.0Be v -â‚¬3.4B prior - 10:00 (US) Dec NAPM-Milwaukee: 58.5e v 56.7 prior - 20:00 (CN) China Dec PMI Manufacturing: 49.1e v 49.0 prior
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20 Feb Mon
00:00 US- Holiday 21 Feb Tue
All Day flash PMIs 22 Feb Wed
09:00 DE- IFO Survey
09:30 GB- GDP
10:00 EZ- Final HICP
13:30 CA- Retail Sales
15:00 US- Existing Homes Sales
19:00 US- Fed Policy Minutes
20:30 US- API Crude 23 Feb Thu
13:30 US- Weekly Jobless
14:45 US- flash Service PMI 24 Feb Fri
13:30 CA- CPI
15:00 US- New Homes Sales
15:00 US- final Univ of Mich Survey
Odds are Monday will ba a subdued trading session with no major data slated and U.S. markets closed for the President' Day holiday. Key data are due over the week with the first round of PMI releases (flash) along with the German IFO Survey. These tend to be important items for analyst but not as much so for the markets in terms of price fluctuations.
As for where the forex markets are headed, my focus is on market sentiment vis-a-vis economic growth in the U.S. The Fed appears to be embarking on a policy "normalization" path starting with a rate hike on March 15. Market odds on a hike are only 38%. Traders simply don't believe the Fed has the courage to go through with a rate hike. For Yellen to have any future credibility she should hike rates. I'm not sure what this Fed is made of. A 25bp rate hike will not decimate the economy. We will see.
I feel that equity markets are currently of two minds about U.S. economic growth. They are hopeful that the new U.S. administration will be able to come through with its promises, primarily a significant tax cut. However, the establishment opposition (in both parties) are doing all they can to sabotage and obstruct major reform. They have a lot to lose. In addition to tax reform, Obamacare is a quagmire. It is a financial disaster that is going to be nearly impossible to fix in the short run. Whether it all can be fixed will depend on how well Trump delegates power and on how strong his Cabinet will be.
So the equity markets are of two minds. One is optimistic about growth and the second is pessimistic that major change will sabotaged by the establishment. The USD will be suported by positive prospects for growth and undermined by fears of no change.
As of late Friday Fed Funds futures odds for a March Fed rate hike were 38% (44%). Markets now place the odds for rate hikes by June at 112% (12%). That is 100% for one hike (March?) plus 12% for a second move.
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