Intraday Market Thoughts Archives

Merkel may be known as the iron lady, but Italian bonds remain the most influencing on market sentiment primarily due to the size of its sovereign debt. Eurozone leaders have no choice but to pay attention when Italian bond yields soar. We were stopped out of our long EURUSD positions, while insisting that the corrective bounce is not yet over. Todays 150-pt rally in EURUSD puts back the stabilization track ...for now. Fridays latest Premium Insights are found here: http://ashraflaidi.com/products/sub01/access/?a=661 Non subscribers can click here to join. http://ashraflaidi.com/products/sub01/

AL

Ashraf's London Seminar on Saturday starts at 11:00 am, with Sandy Jadeja starting and Ashraf taking over at 13:30. Details on venue found here: http://seminars.cityindex.co.uk/cgi-bin/seminars.cgi?rm=show_event_details&se_id=956&interaction_id=4 IF YOU CANNOT MAKE IT to London, Ashraf will give a WEBINAR on Monday, July 2, as part of a TRIPLE WEBINAR, with Fari Hamzei (stock indices) and George Cavaligos (Bonds & Bunds).

IN BOTH SESSIONS, Ashraf will go cover is latest macro-technicals and the implications on FX, gold, equity indices and gold Click here: https://www1.gotomeeting.com/register/862498377

AL

Direct recapitalization of banks and Eurozone wide banking supervision; periphery yields decline; German retail sales fall and Eurozone CPI steady. Market turns to German vote, core PCE, personal spending, Chicago PMI and Canadian GDP. Link to Aahraf's London seminar on Saturday is below.

The greenback trades sharply lower after EU leaders introduced a plan for a region wide financial supervision by the ECB and a mechanism that will allow the EFSF/ESM direct recapitalization of troubled banks. EU leaders also agreed to relax repayment rules for loans to Spanish banks and allowed a degree of flexibility with austerity conditions, MNI reports. Reports also said that the ESM would not have preferred creditor status in case of Spanish aid.

Spanish and Italian 10 year yields initially declined but started to move up again (currently 6.61% and 5.94%). European Equity indices are still trading sharply higher, some by about 2.5% but moved off their highs. There has been no follow-through on the fx front either.

The EU summit in Brussels continues today so markets are likely to react to headlines with more accurate details. Traders will also focus on German parliament that votes today on the ESM and fiscal compact bills.

In other news, German retail sales declined in May 0.3% from previous -0.2% m/m (-1.1% from -4.3% y/y), Swiss KOF economic barometer improved in June to 1.16 from 0.60 and Eurozone CPI was steady and in line with expectations in June at 2.4%.

LINK TO ASHRAF'S SATURDAY SEMINAR IN LONDON:

http://seminars.cityindex.co.uk/cgi-bin/seminars.cgi?rm=show_event_details&se_id=956&interaction_id=4

The NY session starts at 8:30 am ET with core PCE that is seen higher in May at 0.2% from previous 0.1%. Personal spending is anticipated to slow to 0.1% from previous 0.3%.

Chicago PMI is due at 9:45 am and it is expected to rise marginally in June to 52.8 from 52.7 and consumer sentiment that comes 10 minutes later is expected to be revised higher to 74.2 from initial 74.1.

Canadian GDP is due at 8:30 am ET and it is expected to rise in April 0.2% from previous 0.1% m/m (1.8% from 1.6% y/y).

-Patrick Urban

A European growth-boosting deal may be derailed by Italian demands for bond buying. The yen surged while the euro and Swiss franc slumped on the day. US economic data was neutral but a surprise ruling upholding healthcare reform in the US sparked volatility. The Asian calendar is busy with Japanese jobs, inflation and industrial production.

EU leaders appeared to agree on a 120B euro plan to boost growth late on Thursday but at the last minute Italy has boycotted the agreement because it wants assistance with borrowing costs. A failure to reach any sort of agreement before Monday could lead to a market rout and Italian leaders seem to believe the threat of market chaos will be enough to convince its neighbours to participate in a bond buying program.

Negotiations could grow tense in the day ahead but the euro has avoided a sharp fall so far. EUR/USD remained above the European low of 1.2407 and rebounded has high as 1.2455 on a late rebound in US stocks. The S&P 500 closed down 0.2% to 1329 after falling as much as 1.4% late in the session.

An extra variable in trading came from the US Supreme Court decision to allow the key parts of Obamas plan to require Americans to have medical insurance. InTrade was pricing a 75% chance that the measures would be shot down and most analysts felt the same way. Stocks initially fell but overall volatility was relatively low.

Economic data was close to expectations. Initial jobless claims were at 386K compared to the 387K consensus while the third reading on Q1 GDP was unrevised at 1.9%, as expected.

The Asia-Pacific calendar is busy. Japan is in focus with unemployment and CPI at 2330 GMT. The May national CPI, ex-food and energy is expected down 0.6% y/y. More severe deflation combined with soft employment figures could spark more speculation about QE. June Tokyo CPI numbers will also add a more real-time input to the inflation picture.

Twenty minutes later, May preliminary industrial production is expected to rise 6.7% y/y, a slowdown from the +12.9% pace in April.

Later, at 0130 GMT, the focus shifts to China with industrial profit data for May. The latest Chinese newspaper reports suggest a reserve ratio cut in July; a soft reading -- -2.5% y/y or lower -- would likely confirm it.

-AB

Expectations for a decisive action drop; European data deteriorate; German unemployment rate unchanged; UK GDP unrevised q/q but lower y/y; UK current account deficit wider; Italian auction. Focus on final GDP, jobless claims and EU summit. Ashraf will be with Tom Keene on Bloomberg Radio at 8:30 am EST (13:30 BST). Link provided below.

The USD moved higher across the board except JPY on reports from a German official who said that no decisive actions will be taken at the EU summit that starts today in Brussels. Market expectations for a solution of the ongoing crises have been declining so safe haven flows should underpin the buck if nothing concrete and decisive emerges from the summit that ends tomorrow. The first working session is scheduled to start shortly after 2:00 pm GMT (10:00 am ET).

Data reports continued on the deterioration path as Eurozone business climate declined in June to -0.94 from previous -0.79 and consumer confidence was revised lower to -19.8 from initial estimate -19.6. German unemployment rose 7K in June from May's 1K but at least the unemployment rate remained unchanged at 6.8%. EURUSD fell from 2520 to 2406 and currently trades around 1.2430.

UK current account deficit widened to GBP -11.18 bln from previous GBP -7.23 bln and the final Q1 GDP remained unrevised q/q at -0.3% but the annualized result was revised lower to -0.2% from initial estimate -0.1%.

UK nationwide HPI dropped 1.5% in June from previous -0.7% y/y which is the lowest result in nearly three years. GBPUSD trades around 1.5550.

Italy was able to sell 2017 and 2022 BTPs totaling EUR 4.79 bln vs. EUR 5.5 bln target. Average yields rose and cover was mixed. 10 year yield hit the highest level since January 6.284% while the Spanish 10 year yields 7%.

According to the ECB banks borrowed EUR 5.21 bln via the overnight facility yesterday, significantly more compared to yesterday's EUR 3.09bln. EUR 772.58 bln was deposited.

The US session starts at 8:30 am ET with third reading of Q1 GDP which is expected to remain unrevised at 1.9% y/y and jobless claims that are seen slightly lower this week at 385K from previous 387K.

Even though trading today is likely to be driven by headlines, rumors and unconfirmed reports, the market could also respond to speeches by FOMC member Sandra Pianalto at 11:30 am and MPC member Martin Weale at 1:00 pm.

Ashraf will be with Tom Keene on Bloomberg Radio at 8:30 am EST (13:30 BST). Link provided below http://www.bloomberg.com/radio/

Ashraf explains Eurobonds on AlArabiya (with English Synopsis) as well as on German bunds & the metrics of escalating dangers. http://youtu.be/BD8SoFQS2uE شرح السندات الموحدة و تحليل المخاطر في قناة العربية

The highly anticipated EU Summit finally begins on Thursday but hopes for a comprehensive solution are nearly nil. Risk trades improved slightly on better US economic data with AUD leading and GBP lagging. Japanese retail sales are the highlight of Asia-Pacific trading. Analysis & rationale has been added to last nights Premium Insights on EURUSD, USDJPY, USDCAD and gold. See more below.

The Spanish delegation will be in a better mood than their Portuguese counterparts heading into the Summit. Meanwhile, the Italian and German delegations surely wont be scheduling any meetings in the early evening as Euro 2012 reaches its final stages. The leaders might as well watch the games with market participants now expecting almost nothing of substance from the get-together.

Officials need a laser-like focus on growth and lower borrowing costs but are distracted by grandiose 10-year proposals for a united Europe. The market remains fearful of positive headlines but will be eager to sell the euro if nothing materializes.

The market was quietly optimistic ahead of the Summit with US stocks gaining 0.9%. The mood improved after May durable goods orders rose 1.1% compared to 0.5% expected. The details of the report were mixed but orders excluding defense and aviation were roughly in-line with expectations. After so many weak numbers since the start of May, simply meeting expectations was enough to boost sentiment. Housing also appears to be stabilizing with pending home sales up 15.3% y/y compared to the 9.9% consensus.

The Asia-Pacific calendar is relatively busy after a quiet start to the week. At 2350, Japan will release retail sales for May. The consensus estimate is a 2.9% y/y rise following the 5.8% increase in April. In month-over-month terms, a 0.2% rise is expected.

Other releases include Australian HIA new home sales and New Zealand business confidence from NBNZ, both at 0100 GMT. A half-hour later, Australian May job vacancies will be released.

Latest Premium Insights include the analysis for trades in progress as well as those were squared to pave the way for the next sessions. See more detail on the latest Premium Insights http://ashraflaidi.com/products/sub01/access/?a=660 Non subscribers can take part here: http://ashraflaidi.com/products/sub01/

-AB

Although stocks attempt their rally, USD remains robust across the board. We remain unwilling to participate in any fresh shorts in EURUSD due to the possibility for upside risk-outcome from the EU Summit and ongoing weekly oscillators in the pair. See more detail on the latest Premium Insights http://ashraflaidi.com/products/sub01/access/?a=660

Ashraf talks to BNN about Debt Mutualisation vs. Eurobonds, Italy, German bunds. http://watch.bnn.ca/#clip710281

Japan's lower house approves tax hike; German CPI still being collected; UK BBA mortgage approvals lowest in over a year; Italian auction and business confidence; Spain could hike VAT. US May durable goods orders rose 1.% after 2 down months, w/ 0.4% ex transport. pending home sales. Latest Premium Insights from Tuesday night includes new trades on EURUSD, USDJPY, GBPUSD and existing trades in gold and USDCAD. See more below.

USD firms ahead of the EU summit as concerns that the summit will fail to produce anything concrete and meaningful are mounting. Meanwhile, chancellor Merkel meets president Hollande today in Paris and German budget committee deliberates and votes on the ESM and the fiscal compact bills.

Moody's downgrade of 2 Austrian bank notes may cast doubt on German bank exposure.

Japan's lower house voted to double the sales tax from 5 to 10% by October 2015. If it is approved by the upper house, which is expected and becomes a law then it would be the first tax hike since 1997. JPY initially slightly weakened but later regained ground. USDJPY trades around 79.50.

German June CPI is still being collected and the result is due later today. Analysts expect a flat reading after a 0.2% decline seen in May. German import prices declined 0.7% in May after falling 0.5% in April.

UK BBA mortgage approvals declined in May to 30.2K from April's 32.1K which is the lowest since 04/2011 while net mortgage lending hit record low. GBP initially weakened but CBI realized sales that soared in June to 42 from previous 21 helped the currency to recover its losses. CBI sales grew at the fastest pace since 12/2010. GBPUSD trades around 1.5625 while EURGBP retraced towards 0.7995.

Italy reached its target value as it sold EUR 9 bln of 6 month BOT. The average yield rose to 2.957% from 2.104% and cover improved to 1.62 from 1.61. Italian business confidence increased in June to 88.9 from 86.6.

Spanish 10 year yield is little changed around 6.86% amid speculation that the VAT could be hiked for some items, removing them from the discounted tax rate. Meanwhile, May retail sales dropped 4.9% y/y.

US May durable goods rose 1.1%, better than the expected 0.5% following 2 straight down months. Pending home sales are due at 10:00 am ET and they are seen higher at 1.2% in May from previous -5.5%.

Tuesday evenings Premium Trades are posted in the following link: http://ashraflaidi.com/products/sub01/access/?a=659 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

Angela Merkel said shared debt liabilities will not exist as long as she lives. The Australian dollar was the leader and the euro lagged as risk assets recovered. The Asia-Pacific calendar is empty. Latest Premium Insights from Tuesday night includes new trades on EURUSD,USDJPY, GBPUSD and existing trades in gold and USDCAD. See more below.

The German Chancellor emphatically ended speculation about Eurobonds in a closed-door meeting, attendees reporting that she said total shared liability will not happen as long as I live. Later reports sought to play down the remarks but it is clear that debt sharing is a long-term solution to a problem with a short-term deadline.

Periphery yields leapt higher with Italian 10-years up 17 bps and Spanish 10s climbing 24 bps to 6.87%. EUR/USD fell to 1.2442 on the worries but later climbed back to 1.25, which has been a magnetic level.

Expectations for the Thursday-Friday EU Summit have been pared back to hopes for a road map to a banking union. Clever spin may ignite a short-term risk rally but the foundations for a European recovery remain elusive.

Meanwhile, the US economy continues to deteriorate. Consumer confidence fell to 62.0 in June from 64.4 in May. The Richmond Fed manufacturing index fell to -3 from +4. Both reports were below expectations.

The S&P 500 gained 0.5% to 1320.

The Asia-Pacific calendar contains no significant releases. The focus will remain on Japanese politics after the sales tax was doubled by a contentious vote yesterday. Rebellious DPJ members have threatened to form a new party but after the vote, leading critic Ozawa said he will make a final effort to reconcile with his party before making a decision.

Tuesday evenings Premium Trades are posted in the following link: http://ashraflaidi.com/products/sub01/access/?a=659 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

-AB

Hours after the euro dropped on Angela Merkels dampening of Eurobond optimism via her renewed opposition debt mutualisation, credit agency Egan Jones downgraded Germanys AA- rating to A+. Here are our latest Premium Trades http://ashraflaidi.com/products/sub01/access/?a=659 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

AL

Cyprus requests aid; EU moves closer to common debt; German GfK rose; BoE's King comments; UK PSNB higher; Italian retail sales drop. Market turns to S&P Case Shiller and CB consumer confidence. Link to Ashrafs London Seminar this Saturday is below.

Euro remains inside 1.2480-1.2530 range despite the official request for emergency funding by Cyprus. The application was received only a few hours after Spain has submitted its request. EUR 10 bln is being considered for the EUR 17.3 bln economy and Cyprus is the 5th out of 17 Eurozone members that had to seek rescue aid.

LINK TO ASHRAF'S LONDON SEMINAR THIS SATURDAY

bit.ly/LkPDfQ

At the beginning of the London session EURUSD moved higher on Reuters report that common debt and other forms of fiscal solidarity could be considered in the EU fiscal union. Rate rose to 1.2530 but quickly sold off back to 2480.

German GfK consumer confidence continues to defy the ongoing crises as the index rose to 5.8 for July from previous 5.7. However, economic expectations component dropped 16.6 points to 3 after increasing for three months back to back. EURGBP breached 0.8000 support and trades around 0.7988.

BoE governor King said during the Treasury committee hearings that a rate cut has not been ruled out and that bond purchases can provide bigger stimulus. He showed pessimism towards the Eurozone, while stating the UK is not close to a liquidity trap. The market is currently pricing in only 9% probability of a BOE cut on July 5th. UK public sector net borrowing soared in May reaching a GBP 15.6 bln deficit after 19.9 bln surplus a month earlier.

In other news: Swiss UBS consumption indicator fell in May to 1.05 from 1.37 and Italian retail sales dropped 6.8% in April from previous 1.5% on annual basis which is the sharpest fall in over 10 years.

Spain reached a full take up again, selling bills totaling EUR 3.08 bln vs. 3 bln target. However, average yields rose significantly and bid to cover declined.

The NY session starts today at 9:00 am ET with S&P Case Shiller HPI that is expected to decline 2.4% in April after falling 2.6% a month earlier followed by CB consumer confidence at 10:00 am which is seen lower in June at 63.8 from 64.9. Any reading below January's 61.5 is likely to be the lowest since 41 reached in October.

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Merkel shot down Eurobonds and eurobills ahead of the EU Summit while Cyprus requested a bailout. The carry trade struggled with JPY leading and AUD lagging on the day. The May Japanese corporate services price index highlights a quiet session. See Ashrafs thoughts on Japans tax bill and the yen implications below.

Hopes for a decisive EU Summit on Thursday/Friday are dwindling as scattered reports show leaders working on a roadmap to a banking union but nothing that could be considered game-changing. At the same time, Cyprus joined the list of eurozone nations on life-support as it formally requested aid.

The euro held 1.2470 through the European close and traded close to 1.25 through US and early Asian dealing. A rumored downgrade of Spanish banks came to fruition with 28 banks lowered 1-4 notches due to the sovereign cut on June 13.

A positive surprise came from the embattled US housing sector as May housing starts too place at a 369K pace compared to 347K expected. Other good news came from France and Portugal who affirmed budget targets.

Still, the S&P 500 was in a sour mood, falling 1.6% to 1313.

MORE ON JAPANs TAX VOTE AND THE YEN IMPLICATIONS

http://ashraflaidi.com/t/?h3383

The lone indicator on the Asia-Pacific schedule comes at 2350 GMT when Japans May CSPI is expected to rise 0.3%. Australia comes into focus later in the session as RBA assistant gov Debelle speaks at a mortgage finance panel in Adelaide.

-AB

UNLIKE LAST YEAR WHEN RUSSIA BAILED OUT CYPRUS via a 2.5 bn loan at a below-market rate of 4.5%, Russia has not budged today. Moscow has come under vocal criticism by the West for its continuous veto of a resolution to intervene in Syria aimed at stemming the violence by Assad. Another Russian bail-out Cyprus may yet again be needed by global markets, but neither Washington nor Berlin are likely to initiate those demands any time soon.

TIME FOR ANOTHER JAPANESE POLITICAL SHAKE-UP?

Yen awaits Tuesdays Japanese Lower House vote on a consumption tax bill (double the 5% rate), which will likely pass by a majority, as the ruling DPJ (289/480 seats) is said to have agreed with the opposition LDP (120 seats) as well as the smaller opposition New Komeito Party.

But there is talk that even if the bill passes, the anti-bill faction led by Ozawa inside the ruling DPJ may break away from the party and force PM Noda to resign.

The fundamental impact of raising consumption tax may be positive for the yen as it addresses the nations ballooning budget deficit, which is among the recommendations of the major credit rating agencies. Currently, the yen is outperforming as a result of the renewed deterioration in global equities.

Nonetheless, we have seen in the past how eroding political confidence in Japan can weigh on the yen. In the event that a no-confidence vote emerges and/or a dissolution of the Lower House dissolution breaks out, then we could see fresh downside for the yen.

The other scenario would be for the tax hike bill to be passed and lead to yen selling as the fiscally austere move may necessitate fresh easing (asset purchases) by the Bank of Japan.

We expect USDJPY to remain supported above 79.00, before regaining a push higher on a combination of renewed political reverberations in Japan and a fresh run-up in US (and global) bond yields as traders doubt the efficacy of the planned Operation Twist in the face of increasing fiscal questions in the US and talk of a bubble in German bunds.

For our PREMIUM INSIGHTS and tradable ideas, click here for direct access to our latest Insights http://ashraflaidi.com/products/sub01/access/?a=658 Non subscribers click here: http://ashraflaidi.com/products/sub01

Ashraf

Greece and EU summit; Spanish PPI and 10 year yield rose; German auction; sovereign issuance. Market awaits new home sales. Details on Premium Insights below.

Risk off sentiment grips markets since the Asia open. USD is higher across the board except JPY that rose sharply. European equities are losing between 0.9% and 2% and the relative strength winner is JPY.

Greek PM Samaras as well as the finance minister Rapanos will miss the EU summit on Thursday and Friday as both are in the hospital (PM underwent an eye surgery while the finance minister's illness has not been disclosed). The foreign minister along with outgoing finance minister will attend the summit instead and are expected to ask for an adjustment of terms surrounding the bailout. Trading is likely to remain range bound ahead of the critically important summit and a failure to present clear and decisive steps to deal with the ongoing crisis would likely result in a swift EUR decline. German government spokesman already suggested that no decisions on Greece will be made at the summit.

The only data released throughout the London session was Spanish PPI that rose 3.2% in May from previous 3.0% y/y. Spanish 10 year yield moved higher from about 6.35% to current 6.53% after Spain formally requested bank recapitalization aid.

Germany sold 12 month bills totaling EUR 2.04 bln vs. 3 bln target. The average yield fell to record low 0.0191% from previous 0.0264% but cover improved.

Eurozone sovereign bond issuance from Germany, France, Spain and Italy is expected to reach EUR 22 bln this week, up from last week's EUR 16.78 bln, MNI reports. According to their own calculations, Eurozone's sovereign issuance this year has reached over EUR 441 bln, which is about 55.1% of the total 2012 funding needs.

The US data is limited today to new home sales that are seen marginally higher in May at 347K from previous 343K. Existing home sales that can be used to estimate the trend were slightly below expectations last Thursday so we might get somewhat weaker print today.

Both EURJPY longs & 1 GBPJPY long stopped out. The latest Premium Insights are found here: http://ashraflaidi.com/products/sub01/access/?a=658 Non subscribers please click here: http://ashraflaidi.com/products/sub01/

Ashraf on CNBC drawing a few analogies between the Euro2012 Football match between Greece and Germany and their respective roles in the Eurozone. Germany has no choice but to make concessions for Greece & other members despite some opposition at home. Germany is unlikely to leave the Eurozone or the latter to break into a smaller group. Also mentioning the realities of PIIGS & BRICs. http://youtu.be/I4a7TTPHOBQ

The euro tentatively declined in early trading to open the week as the focus sharpens on the upcoming EU Summit. In Fridays CFTC data, the net US dollar position was cut by 43% on a plunge in euro shorts. Latest Premium Insights include 10 new trades from Thursday, including GBPJPY, EURJPY & EURUSD. See more below.

Italy may have beat England but the euro is lagging the pound to begin the trading week. The calendar is light around the globe and the market is focused on the EU summit beginning Wednesday.

Health problems for Greek new Prime Minister and finance minister will prevent them from attending and have forced the Troika to delay an initial consultation. The problems are minor but could delay bailout renegotiations.

Austrian fin min Fekter said she is open to negotiations about prolonging the timetable for Greek reform but Germany continues to drive a hard line. Fin min Schaeuble said Greece needs to stop asking for help and follow through on its promises. He also ruled out Eurobonds once again.

Schaeuble will not be encouraged by a report in a Greek weekly that said the nation has added 70,000 public sector jobs since 2010. The jobs were to replace retiring public sector workers but many came after Greece said it would replace just 1-in-5 departures.

Also in Germany, the upper house has agreed to ratify the ESM after state leaders were placated with additional funds.

Fridays CFTC report showed the euro net position down 27% to -141K while yen longs rose by a similar proportion to +15K and GBP shorts were cut by 25%.

Shorts on the Australian dollar were nearly cut in half while NZD shorts were trimmed by 42%. The Canadian dollar remains in a net positive position, but 14% less than a week ago.

The latest Premium Insights include 10 new trades , with an emphasis on yen Crosses; 3 new charts on yen crosses and 1 chart on latest US business surveys and http://ashraflaidi.com/products/sub01/access/?a=658 Non subscribers please click here: http://ashraflaidi.com/products/sub01/

-AB