Intraday Market Thoughts Archives

Already hearing from two well placed sources that the ECBs next LTRO could be as long as 5 years at a refi rate of 0.50% (following another 25-bp cut in official rates). Such would be a prominent example of the ECBs shock-&-awe in delivering the next blow to sovereign bond yields. Click here for more http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Bundesbank against ESM banking license and ECB bond buying; Italian auction; Spanish and Italian 10 year yield declining; Swiss KOF rose; Spanish unemployment rate record high. Market turns to Q2 GDP. Thursdays Premium Insights issued 10 new trades, with 1 remaining unfilled (USDJPY), 1 of 2 EURUSD longs in progress (other unfilled by 9 pips). More on EURJPY, GBPJPY, GBPUSD and metals below.

FX consolidated yesterday's gains and traded within a narrow range throughout Asia. The common currency briefly declined during the London session on headlines that the Bundesbank is still opposing giving the ESM a banking license and also on comments that it has not changed view on ECB buying government bonds. Nevertheless it recovered against the USD and trades off the lows. Relative strength winners are GBP and NZD and European equities trade within the -0.25% to 0.1% range.

Italy reached a full take up as it sold EUR 8.5 bln 6 month BOT bill. The average yield declined to 2.454% from 2.957% and cover was steady at 1.61. Italian and Spanish 10 year yields are declining, currently at 5.96% and 6.81% respectively, on story in Le Monde that the ECB is preparing for debt purchases on the secondary market while the EFSF would be used to buy debt in the primary market.

Other reports showed that Swiss KOF economic barometer exceeded expectations as it rose to 1.43 in July from previous 1.15 and Spanish unemployment rate ticked higher to 24.6% from 24.4% which is the highest print on record.

German CPI is being collected and results should be released at 2:00 pm. Market anticipates monthly inflation to rise 0.4% in July after -0.1% while the annual figure is seen steady at 1.7%.

The key event of today's session will be Q2 GDP that is due at 8:30 am ET. Analysts forecast a weaker 1.4% growth compared to 1.9% in Q1. Personal consumption is seen lower at 1.3% from previous 2.5%.

Final reading of University of Michigan consumer confidence is due at 9:55 am and market expects unrevised result at 72.

Premium subscribers who may have missed on the entries of Thursdays Premium Insights can take another look at the current market levels after the price moves in early Friday Asian trade. We issued 10 new trades, with 1 (USDJPY) remaining unfilled. 1 of 2 EURUSD longs are in progress (other unfilled by 9 pips). USDJPY short awaiting fill. USDCAD short unfilled (need 1.0120). 1 of 2 GBPUSD longs in progress, other unfilled. GBPJPY, AUDUSD, EURJPY, silver and oil are all in progress. DIRECT ACCESS to today's Premium Trades is found here: http://ashraflaidi.com/products/sub01/access/?a=670 Non subscribers can click here: http://ashraflaidi.com/products/sub01/

Ashraf discussing Draghi, euro & ESM on CNBC earlier today http://video.cnbc.com/gallery/?video=3000105521&play=1

Confident words from Draghi turned the tide in markets, leading to large rallies in the euro, pound and commodity currencies. GBP was the best performer while the yen lagged. Japanese CPI deepened into the negative. and retail sales close out the Asia-Pacific trading week. Thursdays Premium Insights include EURUSD, GBPUSD, GBPJPY, EURJPY, AUDUD, USDCAD, silver and US Crude.

Draghi said the ECB will do whatever is necessary to preserve the euro. And believe me, it will be enough.

That statement continued to reverberate through US trading and into Asia. As Ashraf mentioned, the comments from Nowotny and expectations for a dovish Fed next week also fed into the move.

Looking at fundamentals, the US continues to weaken. Headline durable goods orders were strong but it was entirely due to volatile aircraft orders. Excluding aircraft and defense, capital goods orders fell 1.4% in June, worse than the 0.1 rise expected, even factoring an upward revision to the May data.

Jobless claims were better than expected but seasonal distortions are at work. Pending home sales were weak after yesterdays soft reading on new home sales.

The bond market continues to signal deflation and a potential recession. The Treasury sold 7-year notes at a record low yield, below 1%. Even with the positive news, 10-year yields still posted the fourth lowest close ever.

Periphery bond markets surged on speculation about ECB buying or some other program to bring down borrowing costs, not on economic improvement.

The ECB and the Fed have now boxed themselves into a corner by promising to do more.

Japan CPI fell to -0.8% vs -0.6%.

Another report to watch comes at 0130 GMT when China releases industrial profits for June. A strong reading may help to calm fears about manipulated GDP data, while a soft number would further fuel them.

DIRECT ACCESS to today's Premium Trades is found here: http://ashraflaidi.com/products/sub01/access/?a=670 Non subscribers can click here: http://ashraflaidi.com/products/sub01/

-AB

Premium subscribers can see the NEW FORMAT of the layout in our Premium Insights, with tabular presentation of new, existing and unfilled trades as well as those which hit all targets, stopped out or in progress. DIRECT ACCESS to today's Premium Trades is found here: http://ashraflaidi.com/products/sub01/access/?a=670 Non subscribers can click here: http://ashraflaidi.com/products/sub01/

Here is our latest take on Draghi's comments. The new Premium Insights will follow in the next 30 mins . The rally already began 24 hours ago. Yesterdays rally was also caused by rumours about a 3rd LTRO starting next month. READ MORE HERE: http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Dow futures are up 137 pts as risk is boosted by Draghi's comments; German GfK rose; Italian auction reach full take-up; Spanish 10 year yield declines. Market turns to durable goods orders; jobless claims and pending home sales. Todays Premium Insights will be due out before the US session.

The USD is weaker in the ongoing session across the board. European equities are gaining nearly 1% and the relative strength winners are AUD and NZD while JPY lags.

The common currency pushed higher on the ECB president's comments that he will do whatever is needed to preserve the euro. He also said that the euro was irreversible. Draghi said: "firewalls will work much better than in the past". He was participating in a panel discussion at global investment conference in London. EURUSD trades near session highs around 1.2280.

German GfK consumer confidence rose slightly in August to 5.9 from previous 5.8. GfK noted that economic optimism is fading as consumers are fearful that Germany will be drawn deeper into the crises. Nevertheless, income expectations and willingness to buy remained at good levels.

Italy reached a full take up as it sold EUR 2.5 bln of 2014 bond. The average yield rose to 4.86% from 4.71% but cover improved to 1.78 from 1.65. According to MNI calculations, EZ sovereign issuance so far this year totals EUR 524.8 bln, about 65% of total funding needs. Spanish 10 year yield declined to 7.19%.

The US session begins at 8:30 am ET with durable goods orders that are seen lower in June at 0.4% from previous 1.3%. Core goods are anticipated to rise only 0.1% from 0.7%. Jobless claims should be lower at 381K from previous 386K.

Pending home sales are due at 10:00 am and are expected to grow mere 0.6% in June after jumping 5.9% in May. Markets could also respond to treasury secretary Tim Geithner whose testimony before the senate banking committee also starts at 10:00 am.

A new set of Premium Insights are due later today. USDCAD hit all targets. 1 of the 2 EURUSD Monday shorts hit targets, with the other stopped out. US crude stopped out and and USDJPY remain in progress . Gold, GBPUSD and AUDUSD hit all targets, DIRECT ACCESS click here: http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/ A new set of trades will be issued later today.

The ECBs Nowotny mulled a banking licence for the ESM, sparking a rebound in sentiment. Egan Jones' downgrade of Italy deep into junk territory at CCC+ was ignored by the euro. The Australian dollar was the best performer while the pound struggled after GDP. In Asia, the RBNZ held rates and the BOJ governor speaks. Gold, Aussie & GBPUSD shorts hit all targets. A new set of Premium Insights will be issued on Thursday before to the US session. Another article by WSJ's Hilsenrath suggesting the Fed could take more action by end of summer also boosted sentiment.

The euro rallied above 1.2150 on Nowotnys comments but it may have been more of a reaction to five consecutive days of EUR/USD and EUR/JPY declines. Nowotny merely suggested that he saw arguments in favour of the approach but conceded that there has been no specific discussion about a banking licence at the ECB.

Rumors circulated about another LTRO next week but there was nothing to back it up.

The US economic calendar was bare but corporate earnings were solid, especially equipment maker Caterpillar, which had some upbeat comments on the global economy. The focus was mostly on Europe where Spanish and Italian 10-year yields fell back to 7.38% and 6.44%, respectively.

Ratings agency Egan-Jones downgraded Italy to CCC+ from B+ and there was chatter that the UK AAA-rating is vulnerable after the weak GDP report.

In Asia, the RBNZ held rates at 2.50%, as expected. There was some speculation about a dovish statement was it was relatively unchanged from last month and carried a neutral stance.

The calendar features Korean second quarter GDP at 2300 GMT. The numbers may offer clues into the strength of the global economy. At 2350, Japan releases the June corporate service price index; its expected flat y/y.

Twenty minutes later, BOJ Governor Shirakawa speaks. New options for easing may be discussed and anti-yen jawboning is likely.

A new set of Premium Insights are due on Thursday. 1 of the 2 EURUSD Monday shorts hit targets, with the other filled and in progress. US crude and USDJPY remain in progress . Gold, GBPUSD and AUDUSD hit all targets, while 1 of 2 USDCAD in progress, the other stopped out. DIRECT ACCESS click here: http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/ A new set of trades will be issued later today.

-AB

Banking license for ESM; German IFO disappointed; UK GDP droppd to 3-yr lows, Spanish 10 year yield eased. Market turns to new home sales and later by the end of the session to RBNZ rate decision. Gold, Aussie & GBPUSD shorts hit all targets.

The greenback is lower in the ongoing session against most majors. European equities are gaining about 0.5% and the relative strength winners are AUD and NZD.

The USD gave up some ground after the ECB council member Ewald Nowotny said that he sees arguments for granting the ESM a banking license which would give it access to ECB lending. However, optimism quickly faded as the attention grabbing headline was taken out of context as he said that there are arguments for it and also against it.

European data disappointed again as German IFO business climate fell in July to 103.3 from 105.2, the current assessment declined to 111.6 from 113.9 and finally the expectations component slumped to 95.6 from 97.2. Despite the weak data, EURUSD was able to break above yesterday's high and continues to trade near session highs around 1.2145.

GBPUSD dropped from 1.5530 to 1.5470 after Q2 GDP came in significantly below expectations at -0.7% from previous -0.3% q/q which is the weakest quarterly growth since Q1 2009. The annual figure showed 0.8% contraction after falling 0.2% in Q1. Additional holidays due to queen jubilee and the wettest quarter on record probably had an impact but the statistics office could not quantify the effect yet. GBPUSD retraced a part of the loss and trades around the 1.55 handle.

Spanish 10 year yield initially pushed higher to 7.74% but declined later and trades around 7.51%.

Germany sold 30 year benchmark bond totaling EUR 2.322 bln vs. 3 bln target. The average yield dropped to 2.17% from previous 2.62% and cover rose to 1.5 from 1.1.

US data calendar is limited today to new home sales due at 10:00 am ET that are anticipated to rise marginally to 372K in June from 369K in May.

By the end of the session at 5:00 pm the RBNZ will announce its cash rate decision. Rates are expected to remain unchanged at 2.5%.

Gold, GBPUSD and AUDUSD hit all targets, while 1 of the 2 EURUSD Monday shorts hit targets, with the other now filled. US crude and USDJPY remain in progress . 1 of 2 USDCAD in progress, the other stopped out. DIRECT ACCESS click here: http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/ A new set of trades will be issued later today.

The relentless march higher in Spanish borrowing costs continued after officials in Spains second most-populous region hinted they will be asking for a bailout. The yen was the top performer while the euro lagged. Australian CPI is the highlight of Asia-Pacific trading. 1 of the 2 EURUSD shorts hit all targets, Cable, Aussie & US crude near their final targets. See more below.

Spanish yields rose to a fresh record high after a high-ranking Catalonian official said the region will tap the bailout fund. Ten-year yields rose to 7.67%. Italian borrowing costs rose even more sharply on the day, surging more than a quarter-point to 6.60%.

The euro fell for the fifth consecutive day against the yen, touching an 11-year low. EUR/USD fell to 1.2043 shortly after the European close. Reuters reported that the ECB is considering negative deposit rates.

Chatter about a recession in the US ramped up after the Richmond Fed fell to -17, far below the -1 expected. The Markit manufacturing PMI also hit the lowest since Dec 2010.

Risk trades got a slight lift late in the day on a Hilsenrath WSJ article saying the Fed is itching to do more but those gains faded after the weak quarterly report from Apple.

At 0130 GMT, Australia releases second quarter inflation figures. Stevens was upbeat in comments yesterday so even a reading below the 1.3% y/y expected would be unlikely to force their hand. One troubling sign was a move by NAB to raise borrowing rates for businesses, according to published reports yesterday.

Also on the calendar at 0130 GMT, BOJ Gov Yamaguchi delivers a speech and press conference. Comments from new member Sato showed foreign bond purchases are on the table.

The market will also be looking to follow up on a Jiji report that Japan will extend its funding package for foreign takeovers.

1 of the 2 EURUSD Monday shorts hit all targets, while shorts in GBPUSD, AUDUSD and US crude are nearing their final targets. Neither USDJPY not the other EURUSD short were filled. USDCAD remains in progress. DIRECT ACCESS click here: http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/

-AB

One day before the release of the German IFO survey, we bring you this chart combining all of Germanys key business surveys (3 IFOs, 2 ZEWs, 2 PMIs) against the Dax. Hours after Moodys downgraded its credit outlook for Germany, German July manufacturing PMI hit a fresh 3-year low at 43.3, posting its 4th monthly contraction (sub-50). Germanys July services PMI fell to 49.7, posting its 2nd monthly contraction. At what point will the Dax hit the panic button? CLICK HERE: http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

European manufacturing PMIs disappoint; Chinese HSBC manufacturing PMI improve; UK BBA mortgage approvals fell; Spanish 10 year yield post their 7th straight daily increase to at new Eurozone-era highs of 7.62%. Gold & Aussie charts were added to Mondays Premium Insights. Shots in EUR, GBP and US crude are already in progress. and See more below.

Selling pressure, at least on commodity dollars, eased during the Asian session after Chinese HSBC manufacturing PMI improved to 49.5 in July from June's 48.2 which is 5 month high. AUDUSD retraced to 1.0304 before falling to current 1.0270.

Since London open, EUR traded with a weak underlying tone after all European July manufacturing PMI's not only came in below expectations but also showed fresh declines compared to June. French manufacturing PMI dropped to 43.6 from 45.2, German PMI declined to 43.3 from 45.0 and Eurozone PMI fell to 44.1 from 45.1. Service sector showed a contraction in Germany and Eurozone as a whole but expanded in France (PMI at 50.2 vs. June's 47.9).

Most worrying aspect of today's data is the decline in both sectors in Germany. New business fell at the fastest pace since 6/2009 and new export orders fell the most since 5/2009 which is likely to push q/q GDP growth back into negative territory. EURUSD trades near session lows around 1.2095.

UK data calendar was limited to BBA mortgage approvals that declined in June to 26.27K from previous 29.56K. GBPUSD continues to trade around the 1.55 handle.

Spanish 10 year yield hit a new record high at 7.62% and Italian counterpart trades and 6.46%. Spain sold 3 and 6 month bills totaling EUR 3.048 bln vs. 2-3 bln target. Average yields rose slightly but bid to cover improved.

The US session begins at 8:30 am ET with Canadian retail sales that are expected to rise in May 0.4% from previous -0.5%. Core sales are seen at 0.1% from -0.3%.

Markit Manufacturing PMI is due at 9:00 am and is anticipated to decline slightly to 52.1 in July from previous 52.5 while May house price index due at 10:00 am is expected to slow to 0.4% from 0.8%

Mondays PREMIUM INSIGHTS include EURUSD, USDJPY, USDCAD, GBPUSD, AUDUSD, gold, silver and US crude and GBPUSD and more are found here as well charts on Daily AUDUSD and weekly gold. http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/

The euro tumbled once again on Monday as Spanish and Italian borrowing costs skyrocketed. Risk trades were hit hard with the yen leading and NZD lagging. Markets will remain on edge in Asian trading with the HSBC China flash PMI and comments from the RBAs Stevens. Gold & Aussie charts were added to Mondays Premium Insights. See more below.

After US trading, Moodys changed its outlook on Germany and Netherlands to negative from stable, sparking a renewed round of risk aversion.

Earlier in the day, Spain banned short selling on all stocks after the IBEX fell to a 9-year low. The lows of the day came moments afterward with the euro touching 1.2067 and cable falling below 1.5500. Spanish stocks were down as much as 5.9% before the announcement but squeezed higher afterwards and helped boost risk appetite.

After European markets closed, bond clearer LCH Clearnet announced margin hikes on most Italian and Spanish long-term debt, a move that will surely add to the markets misery. Spanish 10-year yields rose to a record 7.56% and Italian 10s hit 6.40%. The market fled to the safety of Treasury notes, sending yields to a record 1.39%.

The bond market is signaling disaster in Europe with US and global growth at risk of recession. European politicians appears to be out of ideas as Monti said there is no grounds for another emergency EU Summit. On the weekend, German policymakers appeared indifferent about Greeces future the currency union.

Strains are spilling over to emerging markets. Brazilian stocks fell to the lowest since October and the central bank governor said risks to growth are skewed to the downside.

More information on emerging markets will be released in Asian trading today at 0230 GMT when the the HSBC China flash PMI is released. The prior reading was 48.1 with readings stuck around 49 for the past six months. A fall below 48 would undermine growth projects (and statistics) from China and weigh heavily on AUD with the 100-day moving average at 1.0203 at risk.

The other event on the calendar for the session is a speech from RBA Governor Stevens at 0305 GMT.

Mondays PREMIUM INSIGHTS on EURUSD, oil, GBPUSD and more are found here as well charts on Daily AUDUSD and weekly gold. http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/

-AB

It may no longer matter for Spanish aid to bypass state books and onto ailing banks when deepening signs of economic contraction are joined by harsh austerity measures. The Troika was able to capture the imagination of the market by directing funds to Spanish banks without raising the sovereign debt burden. But as the autonomous regions seek bailouts from Madrid (Valencia request for aid may be followed by at least 3 other regions) and contracting GDP complicates the meeting of debt/GDP targets, the burden would have to end up hitting the sovereign books. EUR now finding more comfort om the downside. HERE ARE THE LATEST PREMIUM INSIGHTS on EURUSD, oil, GBPUSD and more. http://ashraflaidi.com/products/sub01/access/?a=669 Non subscribers click here: http://ashraflaidi.com/products/sub01/

Spain 10-y yield at 6.56% as focus turns to Spains sovereign debt, Doubts on IMG Greek aid, Australian PPI rose q/q; higher risk of Greece insolvency; Spanish and Italian yields soar; JPY ignores BOJ jawboning. A new set of Premium Insights will be issued today.

Risk trades came under heavy pressure right after the Asian open which sent USD and JPY broadly higher. The AUD ticked slightly higher after the Australian PPI rose 0.5% in Q2 from previous -0.3% q/q which was more than analysts expected. Soon these gains were reversed and AUDUSD fell lower, currently trading around 1.0285 from Friday's close at 1.0362.

More negative growth from Spain and another request for help from the Valencia raises the possibility that Spain will remain in recession until 2014. This has driven Spain 10 year bond yields to a new high of 7.56%

One factor that contributed to heightened risk aversion came from the IMF that signaled that it will not continue to provide financial aid to Greece, raising the risk of insolvency. MNI reports that the risk of Greece leaving the EZ is seen as manageable now but governments want to wait till the ESM is in operation. The German constitutional court will rule on the ESM on September 12th.

Spanish and Italian 10 year yields surged higher pushing the common currency to below the 1.21 handle. Yields rose to 7.56% and 6.40% during the London session as the flight to safety pushed the 2 year German Schatz yield to a -0.0836% record low. 5 year Spanish CDS hit a record high of 630 bps. There were no fundamental reports released today.

The market yet again ignored BOJ governor Shirakawa's comments that the MOF is monitoring the markets and is ready to take decisive steps. USDJPY fell to 77.94 and EURJPY plunged to 94.23.

The NY session will start at 8:30 am ET with Chicago FED national activity index followed by Eurozone consumer confidence at 10:00 am ET that is expected to decline marginally in July to -20 from previous -19.8.

The news on Friday pummeled Spain like a piata and yields eventually burst to record highs. Risk trades wilted with the yen leading and euro lagging. The moves in the CFTC weekly positioning data were small. Latest on those Premium Insights is below.

Worries about the solvency of the Spanish government reached new highs as yields rose to records from 2-30 years. Poetically, the fears reached new heights shortly after Eurogroup ministers gave the final approval for the Spanish bank bailout.

Minutes later, Valencia asked to tap the regional bailout fund and the budget minister for Spain cut GDP and employment forecasts, adding that high borrowing costs were not factored into projections. Egan-Jones also downgraded Spain to CC+ from CCC+. The Spanish stock market fell 5.8% -- the most in more than two years.

The euro followed Spain down, hitting record lows against multiple currencies. EUR/USD fell below 1.2150 to the lowest since 2010.

Cable fell as UK fortunes erode alongside the rest of the continent. GBP/USD declined nearly a cent to 1.5616.

Risk assets held up relatively well. The S&P 500 fell 1% but closed the week up 0.4%. The Australian and Canadian dollars declined but only modestly.

The week ahead features US second quarter GDP on Friday. The consensus continues to fall with the latest estimates at a paltry 1.2%.

CFTC Commitments of Traders data, as of the close on Tuesday, showed no meaningful increase in euro shorts, a good sign that the trade is not overcrowded.

EUR -167K vs -166K prior

JPY +11K vs +9K prior

GBP unchanged at -7.5K prior

AUD +14K vs +19K prior

CAD -1.2K vs +4.3K prior

1 of the 2 remaining EURUSD shorts hit 1.2180 target, while the other nearing the 1.2120 target . The remaining EURJPY short hit its final target. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=667 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

-AB