Intraday Market Thoughts Archives

Rumor of a Greek deal; UK retail sales rose; German PPI declined; ECB deposits rose; Canadian CPI drops. Market turns to Canadian wholesale sales and US existing home sales. Latest Premium trades (issued last night) are modestly bullish euro. They also include 4 charts on euro and US crude oil.

USD is stronger against all majors with the exception of NZD that is also the relative strength winner in the ongoing session. Major European equities are lower by about 0.5%.

MNI reports a market rumor of a Greek agreement for its PSI deal. The entire Greek debt should be replaced by 30 year bond with coupon rising from 3.1% to 4.75%. Final terms should be announced later today by the IIF. Somewhat surprisingly, EURUSD has not risen on the news and continues to hover right above 1.29.

In the UK, retail sales rose 0.6% in December from previous -0.8% which translates to 2.6% from 0.4% y/y. The growth was attributed to record sales of clothes and footwear that despite the slowing economy grew 1.8% m/m and reached highest level since 1988. GBPUSD trades around 1.5450 after reaching a high at 1.5497.

German PPI declined to 4.0% on annual basis in December, a considerable decline from November's 5.2% (-0.4% from +0.1% m/m). As anticipated, slower growth is slowing pipeline pressure so consumer inflation is likely to fall in the coming months. EURUSD fell on the news from 1.2970 to 1.2890 but has recovered and trades firmly above 1.29.

ECB deposits rose to EUR 420.9 bln on Thursday but this amount is still significantly lower compared to record high EUR 528.18 bln hit on Tuesday.

Consumer inflation in Canada fell in December to -0.6% from previous 0.1% m/m (2.3% from 2.9% y/y). Core fell to -0.5% from +0.1% (1.9% from 2.1% y/y). This is the biggest fall in six months. USDCAD jumped from 1.0135 to 1.0160 on the news.

The New York session will start at 8:30 am ET with Canadian wholesale sales that are seen slightly lower in November at 0.8% from October's 0.9% followed by US existing homes sales at 10:00 am that are expected to show an increase in December to 4.65M from previous 4.42M.

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Chinese manufacturing sentiment was in negative territory for the third straight month in the January HSBC PMI. The yen is the early leader while CAD trails. UK retail sales and Greek debt swap negotiations will be the focus of European trading. Latest Premium trades (issued last night) are modestly bullish euro. They also include 4 charts on euro and US crude oil.

Manufacturing sentiment in China improved ever so slightly to 48.8 from 48.7 but remains below the 50 threshold of expansion/contraction, according to HSBC data. The survey is a solid predictor of the official figures to be released later in the month.

The HSBC figures -- and some disappointing earnings at the end of US trading -- translated into a mild, early round of risk aversion.

Focus on Chinese policymakers is adding to that tone. The market has been watching to see if the PBOC would cut reserve ratios before the Lunar New Year holidays begin on the weekend. A cut could still be announced but it is increasingly unlikely. With Chinese markets virtually closed for the week; that pushes the timeframe for cuts into February. In the interim, market participants will be scouring the Chinese press for hints about the policy bias of leaders. Any sign of reluctance to cut rates will weigh predominantly on the Australian dollar, while a surprise cut would boost AUD.

The top release of the European session comes at 0930 GMT when the UK releases December retail sales. The consensus is for a 0.6% rebound after a 0.4% contraction in November.

The ebb and flow of euro trading is likely to be dictated by Greek haircut negotiations. Much of the euro rebound of the past week was predicated on a successful outcome. Although that continues to be the base case of most traders, the risks of another breakdown grow as every minute passes. These negotiations have been littered with rumours and false dawns.

Look for trustworthy sources and check twitter @alaidi or @FX_Button for confirmed developments.

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Several factors triggered further upside in the euro, ranging from continuous robust interest in Eurozone auctions, to looming prospects for a PSI deal on Greek debt as well as reduced deposits at the ECB. The latest Premium trades incude 4 charts on US crude oil and EURUSD, taking cautious positioning in EURUSD & EURJPY, with a new focus on US crude oil and AUDUSD. Direct Access to these trades is found here: http://ashraflaidi.com/products/sub01/access/?a=585 To subscribe, click here: http://ashraflaidi.com/products/sub01/

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Improving US economic data and yield differentials sparked a flight from the Japanese yen. Euro shorts continued to cover, sparking a rally to 1.2970. The HSBC China PMI is the highlight of the Asia-Pacific session. Latest Intermarket Insights due at approx 2:15 GMT.

USD/JPY climbed above 77.00 and EUR/JPY rebounded to 100.00 and GBP/JPY edged closer to 120.00 as yen longs were covered. Partly driving the trade was a rise in bond yields prompting overseas investors to cycle out of JPY.

US economic data continues to paint an improving picture. Weekly jobless claims fell to 352K from 402K in the largest one-week drop in four years. Earlier positive readings on US jobs were brushed aside due to potential seasonal distortions but this data point signals a true (if modest) improvement.

Other indicators were mixed. The Philly Fed slipped to 7.3 from 10.3 in January but employment improved modestly. Housing starts were downcast, slipping 4.1% compared to the -0.7% expected.

Speculation about a haircut deal in Greece continues to swirl. The IIF said Thursdays talks were productive and the framework for a deal appears to be coming together.

In Ireland, the government released deficit figures that were better than expected. The troika concluded a review and announced the next tranche of aid will be approved.

In Portugal, however, the situation continues to deteriorate. Bond yields and credit-default swaps hit fresh record highs once again.

Asia-Pacific Preview

The event to watch in the upcoming session comes at 02:30 GMT as HSBC releases its flash estimate on Chinas PMI. In the past several months, this indicator has spark a significant round of trading. Other events on the calendar include Australian import/export prices (0030 GMT) and Japanese leading indicators (0500 GMT).

Spanish and French solid auctions underpin the common currency; Eurozone current account deficit narrowed; ECB deposits fell considerably. Focus turns to CPI, jobless claims, housing data and Philly FED index.

USD is mixed in the ongoing session. It is stronger against NZD and JPY, unchanged against GBP and weaker against the rest of the majors. European equities are higher by about 0.75%.

Another strong bond auction came from Spain as it sold EUR 6.61 bln worth of bonds today (EUR target 3.5-4.5 bln). Average yields were generally lower compared to the previous auction.

Despite the recent downgrade, French bond auction nearly reached its EUR 8 bln target as France sold EUR 7.965 bln worth of bonds. The largest auction was for EUR 3.429 bln 2016 bond that averaged 1.89% yield, considerably lower from previous 2.82% with bid to cover improving to 2.12 from 1.68. Other yields and cover also improved.

Fundamental news from Europe was limited to current account deficit that narrowed in November to EUR -1.8 bln from previous EUR -6.6 bln.

In other news, ECB deposits dropped sharply on Wednesday to EUR 395 bln from Tuesday record high of EUR 528.184 bln and Italian PM Mario Monti announced a cabinet meeting for tomorrow that aims to approve plans designed to improve Italian competitiveness.

The US session starts at 8:30 am ET with annual CPI that is expected to decline in December to 3.1% from previous 3.4% while the annual core inflation is seen steady at 2.2%. Jobless claims should come back lower to 387K from previous rise to 399K.

Housing starts are seen steady in December at 685K while building permits are anticipated lower at 675K from previous 681K.

Canadian manufacturing sales due at the same time are seen higher at 1% in November from October's 0.8%.

Philly FED index is due at 10:00 am is expected to rise to 10.7 in January from previous 10.3.

Australias jobs report missed expectations badly and New Zealand CPI was soft. The yen is off to a strong start to the day while AUD and NZD are the weakest performers. In Europe, the first true post-downgrade tests come with Spain and France borrowing long term. 9/13 Premium FX trades hit all targets based on a risk-on positioning.

The Australian dollar immediately fell a half-cent to 1.0380 after the December employment report showed a decline 29,300 jobs compared to the +10,000 consensus. However, the details of the report was far less worrisome than the headline and the aussie was able to recoup a portion of its losses. The miss was wholly due to a 53,700 decline in part time jobs; full-time employment climbed by 24,500 positions. The unemployment rate also fell to 5.2% from 5.3%.

The New Zealand dollar stumbled badly after Q4 CPI. NZD/USD dropped a half-cent to 0.8025 after Q4 CPI fell 0.3% compared to the +0.4% expected. Only a slight chance of a rate cut from the RBNZ this year was priced in prior to the meeting but that percentage is sure to increase and drag NZD lower.

European traders will be focused on a pair of debt sales. At 0930 GMT Spain will attempt to sell 5, 7 and 10-year notes. At 1000 GMT, France will auction a series of bonds extending from 2 to 29 years. Yields across the curve in France remain below 4% but even a slight stumble in a core European nation could crush the recent upward momentum in EUR. Spanish 10-years are currently yielding 5.1%.

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A potential infusion of funds into the IMF and reports Greece is near a haircut deal pushed EUR/USD to 1.2860s. The Swiss franc joined the euro as the top performer while USD and JPY trailed. Japanese retail data and Chinas leading index are highlights in the Asia-Pacific session. Premium longs in Cable, AUDUSD & EURJPY hit all targets, while EURUSD nears final target of 1.2870. Rest of trades remain in progress.

The euros fortunes continue to turn upward after as shorts cover after the Greek finance ministry said it could have a debt-swap deal by the weekend. The IMF also boosted sentiment, saying it hopes to raise an additional $600 billion.

Although the euro ended significantly higher on the day, the gains came in a choppy market. Frequent reports hit about large position covering in EUR/AUD, EUR/CAD and EUR/GBP shorts. Even after the US revealed it will not participate in efforts to boost the IMF, the euro continue to chop higher.

A fat finger in EUR/CHF sparked a nasty whipsaw but the pair eventually closed lower, pressuring the SNB.

Underlying optimism was also boosted by a series of US economic indicators. The NAHB housing index climbed to the highest since June 2007. Although industrial production was a tad below estimates at +0.4%, utilities were a major drag (due to weather). Growth in more cyclical areas like manufacturing was upbeat.

Asia-Pacific Preview

The calendar is generally absent of anything that could trigger a notable FX move but a few items are worth watching. At 0000 GMT, New Zealand follows up earlier CPI numbers with data on consumer confidence from ANZ. At 0200 GMT, the Conference Board releases its leading index for China. At 0530 GMT, Japan releases data on department store sales in December.

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IMF proposes lending expansion to $1 trillion; UK jobless claims rose, unemployment rate ticks up; Swiss ZEW improved; Eurozone construction output rose. Decent German and Portuguese auctions. Market turns to PPI, capacity utilization, industrial production and BOC press conference. All of last night's 13 new Premium trades are in progress, find which hit all targets below.

Sentiment improved after IMF sources said the Fund is looking to increase its lending abilities up to USD 1 trillion. BRIC countries together with Japan and some oil exporting nations should be the biggest contributors. The deal should be concluded before the G20 meeting at the end of February.

On the data front we learned that:

In the UK, December jobless claims rose 1.2K and the claimant count remained at 5%. The ILO unemployment rate ticked up to 8.4% from 8.3%.

Swiss ZEW economic expectations index improved in January to -50.1 from previous -72.

Eurozone November construction output rose 0.8% m/m from -1.4% (0.2% y/y)

Germany sold today EUR 3.44 bln worth of 2 year bonds (EUR 4 bln target). The average yield dropped to 0.17% from previous 0.29% and bid to cover improved to 2.2 from 1.4. Portugal reached its full target as it sold EUR 2.5 bln worth of bills. The debt market will focus on Spanish auction tomorrow that targets EUR 4.5 bln.

As has become the norm recently, the ECB deposits reached a new high on Tuesday at EUR 528.18 bln, more than EUR 25 bln over Monday's record.

Busy US session is ahead today. It kicks off at 8:30 am with December PPI that is expected to decline to 5.1% from 5.7% on annual basis (core PPI exp. 2.8% from 2.9%) followed by net long term TIC flows at 9:00 am that are seen higher at USD 27.3 bln in November from October's USD 4.8 bln.

Capacity utilization and industrial production are both due at 9:15 am and are anticipated higher at 78.2% from 77.8% and 0.5% from -0.2% respectively.

CAD traders will watch the 10:30 EST BoC monetary policy report, followed by the 11:15 BoC press conference.

Coming up before the end of the session at 4:45 pm ET is New Zealand's Q4 CPI that is expected to drop to 2.6% from 4.6% y/y but remain steady at 0.4% q/q.

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The yin and yang of the Chinese economy was on display Wednesday as disappointing housing data followed up yesterdays upbeat data. The euro is strong to start the day while the US dollar lags. The focus of the session will be the UK claimant count and a Portuguese bill auction. There are 13 new Premium Intermarket trades, with new charts on gold & EURUSD.

Chinese housing figures for December highlighted a chief risk to the fast-growing economy. Prices were down in 52 of 70 cities in the month and the year-over-year gain slipped to 1.8% from 2.4%.

Chinese Lunar New Year holidays begin on the weekend and there is intense focus on a cut in the reserve ratio beforehand. Shanghai stocks surged the most in more than two years yesterday on stronger-than-expected GDP figures and expectations of a cut. A report in Chinas Economic Information Daily said a 50 bps cut could come this month, citing an unidentified source.

Also in the Asia-Pacific session, the World Bank cut its global growth forecast and said Europe has probably entered a recession.

In Europe, debt auctions will be in focus once again but first, at 0930 GMT, UK jobless claims are expected up 7K in December. Cable has been choppy for the past several sessions as EUR/GBP shorts are unwound.

On the auction calendar, Germany sells 2-year notes at 1015 GMT and 15 minutes later Portugal sells as much as E2.5B in 3, 6 and 12-month bills. The sale is key after Portuguese 10-year yields hit a record on Monday. On Jan. 4, Portugal sold 3-month bills at 4.346%; in November six-month bills sold at 5.25%; 12-month bills havent been brought to market since April, when they garnered a yield of 5.90%. At todays auction, those yields could rise dramatically, with 20-month bills currently bid at 15%.

This auction is likely to highlight the dire situation in Portugal and weigh on the euro. The market is clearly and decisively turning against Portugal and even short-term funding markets could soon be shuttered.

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As we head into Wednesdays decision regarding the talks between creditors and Athens regarding haircut, there remains Fitch reminder that Greece will end up having to default, albeit in an orderly manner. Euro technical are improving, but may yet again display a short-lived gain, failing to regain $1.29. Our latest Premium Intermarket Insights include 13 new trades, bringing back GBPUSD. The latest charts on gold & EURUSD are also added. Direct access to link http://www.ashraflaidi.com/products/sub01/access/?a=584 First time subscribers can get free trial here: http://www.ashraflaidi.com/products/sub01/

Risk trades drifted lower in US trading on mixed reports from Greece and financial sector worries but the positive tone from Europe remained the dominant theme. On the day, EUR and AUD were the best performers with JPY and USD lagging but the overall moves were reasonably tame. Chinese property prices highlight the Asia-Pacific session. Ashrafs Intermarket Insights will be issued at the start of the Wednesday Asian session (at about midnight GMT)

Greece may avoid a disorderly bankruptcy after all. An asset manager on the creditors committee was quoted late in the day saying he is highly confident a deal will get done that pays creditors 32-cents per euro. The open question is whether the ISDA will trigger credit-default swaps.

Earlier in the day Fitch said Greece is insolvent and will likely default by March 20. The ratings agency said a negotiated private sector haircut would still constitute a default.

Copper closed at the highest since October. US stocks rose to the highest since July, with the S&P500 briefly climbing above 1300 before closing up 0.4% to 1294. On caveat was Citigroup, which badly missed expectations and was the first major financial to report Q4 results. The Empire Fed climbed to 13.5 compared to the 11 expected.

Cable lagged somewhat as EUR/GBP shorts covered. GBP/USD hit 1.54 shortly after the European close but slowing inflation aided speculation the BOE will expand QE next month.

Italian 10-year yields fell 12bps to 6.50%.

Asia-Pacific Preview

Italian PM Monti is meeting with the UKs Cameron and speaking at the London School of Economics at 2300 GMT. At 0130 GMT, China releases data on Dec property prices in what is the lone indicator that could spark market moves. The World Bank releases growth forecasts beginning at 0200 GMT. At 0430 GMT, Japan releases final November industrial production data. No change from the -4.0% y/y initial reading is expected.

Spanish bond auction solid; UK CPI sharply lower; German ZEW improved; Eurozone ZEW stronger. ECB deposits above half a trillion euro. Market turns to empire state manufacturing and Canadian securities transactions and BOC rate announcement. Fitch says Greece will have an orderly default.

USD is lower across the board in the ongoing session. Major European equity indices are higher by about 0.9% to 1.6% and relative strength winners are NZD and AUD.

Another solid bond auction results were seen today as Spain sold EUR 4.88 bln (EUR 4-5 bln target) worth of bonds. 1/2013 bond sold with average yield 2.049%, considerably lower from previous 4.05% with higher bid to cover at 3.55 from 3.14 and 6/2013 bond sold at 2.399% from 4.226%.

Meanwhile, Fitch said a Greek default was imminent and that "We have said for a long time that we don't think this PSI is the way to go and we would treat it as a default. It clearly is a default, however they try to spin it"

In the UK, headline annual CPI fell sharply to 4.2% in December from previous 4.8% which is the biggest fall since 4/2009 caused by lower price of petrochemicals and clothing. Core print declined to 3% from 3.2%. EURGBP is gaining on the news trading firmly above 0.83 from today's low at 0.8277.

On the European data front, German ZEW economic sentiment index improved considerably to -21.6 in January from -53.8 in December and current situation component picked up to 28.4 from 26.8. Eurozone ZEW economic sentiment index improved to -32.5 from -54.1 and annual CPI declined to 2.7% in December from 2.8%.

The ECB deposit facility breached above half a trillion on Monday as deposits rose to EUR 501.93 bln from Friday's EUR 493 bln.

The NY session will start at 8:30 am with Empire state manufacturing index that is expected to increase in January to 10.8 from previous 9.5.

Canadian data include international securities transactions that are due at 8:30 am and are seen higher in November at CAD 6.97 bln from October's CAD 2.03 bln. The impact may be muted as traders will await the BOC rate decision at 9:00 am. It is widely expected that the BOC will hold rates steady at 1%.

GBP volatility is likely to increase at 1:30 pm when MPC member Adam Posen speaks in London.

The Chinese economy grew at the slowest pace in more than two years in Q4 but GDP figures beat expectations, sending risk trades higher. EUR and AUD are the early leaders with USD and JPY trailing. In Europe, Spain will face its first post-downgrade borrowing test.

Chinese GDP expanded 8.9% y/y in Q4 compared to the 8.7% the market was expecting. Industrial production and retail sales also beat expectations. UK Dec CPI at 4.2%, biggest slowdown since April 2009. German ZEW next.

Markets reacted positively to better growth but the strong readings, combined with higher-than-expected CPI last week, cast doubt that the PBOC will cut reserve requirements before the Lunar New Year holidays begin next Monday. The uncertainty may cap AUD gains in the near term.

Another number to watch comes at 0830 GMT when the ECB publishes daily overnight deposit data. The E492B at the ECB in yesterdays report was a record. Although Draghi dismissed concerns yesterday, the market will continue to take notice of a half-trillion dollars sitting idle.

Also watch out when the Baltic Dry Index is published. It has collapsed since late December and is likely to fall to a three-year low, which could spark some headline selling of commodity currencies.

The key event of the session is a Spanish bill sale. The Spanish Treasury will look to replicate Frances successful post-downgrade auction on Monday. The target for the 12 and 18-month funding is 5-billion euros. The market is priced around 200 basis points below the mid-December sale.

If the bill sales are successful, the market will price in successful bond auctions on Thursday and the euro is likely to recoup much of its downgrade-induced fall. The caveat is Portugal, where 10-year borrowing rates exploded to 14.4% on Monday. A geography professor may say otherwise, but at this point, Portugal is much closer to Greece than to Spain.

UK CPI rose 4.2% y/y from after 4.8% in Nov, in line with median forecasts. It was the biggest slowdown since April 2009. AT 10 am GMT, BOEs King is scheduled to deliver a speech.

Also at 1000 GMT, the Eurozone CPI is expected to slip to 2.8% from 3.0%. More importantly will be the release of ZEW business sentiment data. The German economic sentiment index is expected to improve to -49.1 from -53.8. These minor improvements in sentiment data prompted the ECB an optimistic note from Draghi after last weeks ECB rate decision.

EFSF risks downgrade, Troika returns to Greece after PSI talks stall, US markets closed for Martin Luther King Day

Standard and Poors finally delivered on their December threat to downgrade France to AA+, however the added kicker was a negative outlook which puts Europes second biggest economy at a one in three risk of a further downgrade in the next 18 months. Further to that S&P also downgraded Italy two notches to BBB+, which given that the country still needs to raise over 40bn in the next six weeks presents further problems for European leaders.

Attention now turns to the EFSF and a bond auction tomorrow, as markets await a downgrade, given that S&P hinted that the downgrading of any of the triple A contributors would trigger a similar downgrade of the bailout fund. Given that France is the funds second biggest contributor at 20% it would seem only a matter of time before the fund follows suit.

The troika of lenders returns to Athens today in the wake of Fridays collapse of the private sector involvement (PSI) talks aimed at convincing the creditors to take haircuts of 50% of their holdings, in an attempt to get Greeces debt to GDP ration down to 120% of GDP by 2020.

The failure of these talks is a much bigger problem given that Greece has a bond maturity of 14bn due in March, and any changes that need to be agreed would need to be concluded soon given that the paperwork would need a significant lead time to be completed.

A failure to come to an agreement brings the likelihood that Greece will default on its debts that much closer, and the likelihood that the country would also have to leave the euro.

US markets will be closed due to Martin Luther King Day, which suggests that markets will be very thin in the afternoon session.

Ashraf gives his euro outlook to CNBCs Maria Bartiromo on Friday as the Eurozone downgrades were unfolding. Ashraf explained that in order to make predictions about the next 3-6 months, one must grasp the dynamics prevailing this same time in 2011 and 2010. Ashraf also touches upon the falling yields, which are a result of the Ezone banks' latest carry trades and not improved sentiment. maybe a Direct link here: http://video.cnbc.com/gallery/?video=3000067443