Intraday Market Thoughts Archives

Silver is up three times as much as gold so far this year; +26% YTD, versus +9% for gold. This is starting to look like 2010 when silver rose 80% vs. 28% for gold. The 2011 damage in silver was primarily caused by the near-quadrupling of margin requirements from the CME, causing a 10% decline in silver in contrast to a 10% rally for gold. See our ALTEST on GOLD & SILVER here: http://www.ashraflaidi.com/articles/gold-silver-face-the-fed.asp

Eurozone demands assurances from Athens; German retails sales drop m/m but rise y/y; Eurozone PPI higher; ECB deposits soar after LTRO. Market turns to Canadian GDP.

The USD trades higher against most majors. European equities are little changed and the relative strength losers are EUR followed by NZD.

The common currency has been under pressure after Eurozone finance ministers decided to delay the release of EUR 71.5 bln which is over half of the total EUR 130 bln bailout to Greece. The Eurozone needs assurances from Athens that reforms and austerity measures will in fact be implemented. EURUSD was falling until WSJ reported that German lawmakers may be willing to boost Eurozone's rescue fund by combining the EFSF and ESM in order to increase its firepower from EUR 500 bln to EUR 750 bln.

Diverging monthly and annual results were seen in both today's European reports. German retail sales fell sharply 1.6% in January from 0.1% growth seen in December but the annual print improved considerably to 1.6% from 0.3%. Bear in mind that retail sales is one of the more volatile indicators and large revisions are common. Similarly, January Eurozone PPI rose 0.7% from -0.2% m/m but declined to 3.7% from 4.3% y/y. Rising energy costs contributed the most to the monthly increase.

UK Construction PMI rose dramatically in February to 54.3 from previous 51.4 which is the fastest pace of growth in 11 months. New work intakes rose sharply, business confidence reached 9 month high but the employment component declined. GBP was boosted across the board on the news.

ECB deposits soared on Thursday to EUR 776.941 bln significantly above Wednesday's EUR 475.22 bln as banks parked a portion of their funds obtained through the LTRO. Short term increases are not significant but should the deposits remain elevated it would imply that banks are hoarding cash due to market tension instead of extending loans as the ECB hoped. The deposit facility pays 0.25% while banks have to pay 1% for the LTRO funds.

Reports during the NY session are limited to Canadian GDP that is expected to rise 0.3% in December after contracting 0.1% in November m/m but decline to 1.9% from 2% y/y. The quarterly print is seen at 1.8% from 3.5%.

US spending and manufacturing data was soft on Thursday while inflation was higher than expected. AUD closed out the day as the top performer while CHF lagged. Japan releases inflation and employment data. Risk-on trades were picked in Thursdays Premium trades include AUDUSD longs at lower entries, EURUSD, oil & gold.

The euro initially slumped after the ISDA opted not to trigger Greek CDS but the reaction was short-lived as they pointed to the possibility of a different result if/when collective-action clauses are triggered. EUR/USD fell as low as 1.3282 but later rebounded to 1.3320, partly due to large improvements in periphery bonds.

The US January PCE report was a disappointment with spending at +0.2% vs +0.4% expected and income +0.3% vs +0.5% expected. The inflation gauge was at 2.4% y/y compared to the 2.3% consensus. The result is a soft economy with inflation.

Initial jobless claims remained low but the ISM manufacturing survey fell to 52.4 compared to 54.5 expected, raising questions about one of the strongest parts of the economy. Oil hitting $110 for the first time since May adds another potential headwind to the US economy.

Asia-Pacific Preview

Japan releases January employment data at 2330 GMT, with the jobless rate expected at 4.5%, erasing the tick higher to 4.6% in December. Household spending is expected to fall 0.9% after a 0.5% rise in December. National CPI is expected down 0.1% y/y in January while Tokyo CPI is expected down 0.2% y/y in February. A series of soft numbers could provoke speculation the MOF will do even more to weaken the yen.

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Eurozone unemployment rose and CPI remained steady; UK house prices rose; Swiss GDP growth slowed and PMI improved; Spanish and French solid bond auctions. Market turns to core PCE, personal spending, ISM manufacturing and Bernanke's senate testimony. Our new Premium Trades for Thursday include AUDUSD longs at lower entries, EURUSD, oil & gold.

The USD consolidates its gains with a mild downside bias. The greenback gained yesterday after FED chairman Bernanke's testimony diminished QE3 expectations. The hawkish testimony combined with a solid PMI data and upward revision of Q4 GDP sent gold nearly 5% lower.

Worrying development came from Eurozone's labor market today as the unemployment rate rose to 15 year high in January and reached 10.7% from December's 10.6%. However, CPI remained steady in February at 2.7% suggesting that consumer spending may slow which would be reflected in a slower growth.

Swiss Q4 GDP grew 0.1% from previous 0.3% q/q (1.3% from 1.6% y/y). February PMI experienced another contraction but rose to 49.0 from 47.3.

UK nationwide house prices rose in February 0.6% from -0.3% m/m which is 0.9% from 0.6% y/y. Manufacturing PMI slowed to 51.2 from 52.0 as orders were little changed but cost increased.

Spain sold EUR 4.501 bln worth of bonds today, marginally above EUR 3.5 - 4.5 bln target with mixed yields and bid to cover ratios. France sold EUR 7.991 bln vs. EUR 7-8 bln target. Average yields declined.

Eurogroup finance ministers start their meeting where the Greek debt swap is discussed at 8:00 am ET.

The US session starts at 8:30 am ET with core PCE that is expected to remain steady in January at 1.8% y/y (0.2% m/m). Personal spending is anticipated to grow 0.4% after an unchanged print last month and jobless claims are seen slightly lower at 350K from 351K.

ISM manufacturing is due at 10:00 am and is expected to rise to 54.6 from 54.1. FED chairman Bernanke delivers his testimony to the senate banking committee at the same time.

Market volatility could also increase at 12:30 pm when Atlanta FED president and FOMC member Dennis Lockhart delivers a speech at a conference in Atlanta.

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It was the kind of day that truly only comes once every four years. It was a Leap Day to remember as the ECB pumped more than a half trillion euros into the system and Bernanke dropped a hint that QE3 may not materialize. CAD was the top performer while JPY lagged. China's official PMI was a revised lower, remaining in contraction territory. Our new Premium Trades for Thursday include AUDUSD, EURUSD, oil & gold.

Repeated EUR/USD efforts to break through 1.35 were rejected and market participants used the post-LTRO period to pile into fresh shorts, sinking the pair to 1.3330. Some havoc spread from the Treasury market as an apparent fat finger set off a wave of selling. The most extreme move was in gold as it tumbled below $1700 from $1790. Another notable move was USD/CAD falling to the lowest since Sept, in an evident breakout.

Bernanke continued to emphasize downside risks but was a shade less dovish than previously. He noted that unemployment has fallen faster than expected. US Q4 GDP was revised to +3.0% from +2.8%.The market is in the process of scaling down QE3 expectations.

Risk appetite improved after the Beige Book said growth increased at a modest to moderate pace in January and February, manufacturing is improving at a steady pace and consumer spending is generally positive. At the same time, wage pressures are contained.

The pound got a lift from the BOEs Weale who said there may not be a case for further QE and that high inflation may prompt a rate hike sooner than the market is anticipating.

Asia-Pacific Preview

Several lower tier indicators will be released early in the session but they are highly unlikely to jar the market. HSBC's China final PMI for February came in at 49.6, lower than the flash estimate of 49.7.

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Second round of LTRO allots EUR 529.53 bln; Swiss KOF improves; German unemployment steady; Eurozone CPI declined; UK mortgage approvals rose. Market turns to GDP revision, Chicago PMI and Bernanke testimony.

The greenback is mixed today. It is stronger against EUR, weaker against JPY and CAD and unchanged against the rest of the majors. European equities are higher by about 0.4%. The relative strength winners are CAD and NZD.

Markets were consolidating but remained firm ahead of LTRO. In the second round, the ECB allotted EUR 529.53 bln, above median estimate of EUR 500 bln and more than EUR 489 bln allotted in December. There were 800 bidders, compared to 523 in the first round. According to IFRMarkets, the extra net liquidity will reach EUR 313.7 bln. No other LTRO is planned as of now so banks had their last chance to get funding at below market rate. After a nasty whipsaw EURUSD trades lower around 1.3440.

From a long list of European reports we learned today that:

- Swiss KOF leading indicator improved in January to -0.12 from -0.15

- German unemployment was unchanged in February after declining in January by 26K. The unemployment rate remained steady at 6.8%.

- Eurozone CPI declined in January to 2.6% from 2.7% y/y (core CPI 1.5% from 1.6%).

- UK mortgage approvals rose to 59K in January from 55K which is the highest result since 12/2009. Mortgage approvals have been rising steadily for 10 months highlighting the resiliency of the UK housing market.

- ECB deposits rose to EUR 481.14 bln on Tuesday from ER 475.5 on Monday.

The US session starts at 8:30 am ET with a second read of 4Q GDP which is expected to remain unrevised at 2.8% y/y. GDP price index and Core PCE are also seen unrevised at 0.4% and 1.1%.

Chicago PMI is due at 9:45 am and is anticipated higher in January at 61.6 from 60.2.

The main event of the NY session will be FED chairman Bernanke's semi annual testimony to the financial services committee that starts at 10:00 am where he is likely to downplay the recent improvements of US data in order to keep the door to the possibility of QE3 open.

Beige book is due at 2:00 pm but is unlikely to have a lasting impact on the market.

Mixed US data on durable goods orders and consumer confidence as well as the announcement of an Irish referendum led to choppy trading. EUR was the best performer while NZD and USD lagged. Markets are unlikely to make large moves ahead of the LTRO. EURUSD premium trades awaiting to be filled. See Ashraf's Cause & Effect Analysis Ahead of LTRO. Ashraf will preview the LTRO on CNBC, Tuesday at 6:20 am GMT.

US durable goods orders fell far short of expectations, with non-defense capital goods orders ex-air falling 4.5% compared to -1.3% expected in January. There was talk of skew in the data due to the beginning of the quarter and year but it raises questions about the sustainability of the US recovery.

On the other hand, consumer confidence hit a one-year high of 70.8 compared to 63.0 expected and the Richmond Fed climbed to +20 versus the +14 consensus.

The euro briefly fell below 1.34 after Ireland decided to put the new US fiscal oversight rules to a referendum. The losses were short-lived and EUR/USD rallied to 1.3469 shortly afterward.

Wednesdays LTRO, to be revealed at 1015 GMT, is a major risk event. The consensus on the take up is for just under 500 billion euros. Anything from 375B to 600B may not have a huge effect so long as the number of banks participating is high. The knee-jerk reaction to a disappointing number would be a drop in risk appetite due to perceived risks in European banking and less cheap money to flow into sovereigns. The knee jerk reaction to a high take-up will be to buy euros. Over time, however, both knee jerk reactions may be reversed depending on how sovereign bonds and bank stocks react.

CAUSE & EFFECT ANALYSIS PRE-LTRO

Ashraf told the media earlier today that markets were looking at the LTRO from a CAUSE & EFFECT stand point; If the LTRO take up is on the lower end (less than EUR 300 billion) then markets may focus on the CAUSE being that banks require less support, which is a positive. In the case of a larger than expected take-up (above EUR 1 trillion), markets may also deem it as a positive because they would focus on the EFFECT this would have (further lowering bond yields and shoring up banks).

Mondays Premium Intermarket trades include 4 charts on US crude oil vs. CRB & multi time frame analysis EURUSD.

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Our latest HotChart shows US Consumer confidence hit a 12-month high in Feb, proving yet again that consumer confidence indices (Conference Board's consumer confidence and Univ. of Michigan's consumer sentiment survey) are more impacted by equities rather than price of gasoline. But there is a catch. http://ashraflaidi.com/hot-chart/?a=3141 Meanwhile, Gold continues to decline relative to oil as the Gold/Silver Ratio drops below 49 as warned in this December HotChart http://ashraflaidi.com/hot-chart/?a=2977

ECB suspends Greek debt as collateral; another strong Italian auction; German GfK rose; Eurozone economic sentiment and business climate improved; UK CBI better. Market turns to durable goods, SP Case Shiller and consumer confidence. See details below on our Monday Premium Intermarket trades.

The USD trades slightly stronger against most majors. European equities are higher by 0.2% to 0.5% and the relative strength winner is EUR while NZD is the weakest.

ECB temporarily suspended Greek debt from being used as collateral after yesterday's downgrade by S&P to selective default from CC. Greek debt will become eligible again in the middle of March when new collateral framework becomes effective.

Another strong auction ahead of tomorrow's LTRO came from Italy today as it reached a full take up with 5 year and 10 year bonds totaling EUR 6.25 bln. Average yields declined.

On the European data front, German GfK consumer sentiment improved marginally in March to 6.0 from 5.9 in February, Eurozone economic sentiment rose to 94.4 in February from previous 93.4 and business climate improved slightly to -0.18 from -0.21.

In the UK, CBI realized sales remained negative but improved considerably to -2 in February from -22 a month earlier. Stagnating wages and high energy prices suggest that consumers continue to be constrained and outlook remains concerning.

The NY session starts today at 8:30 am ET with durable goods orders that are expected to contract 0.8% in January after December's 3% growth (core is anticipated unchanged).

December's S&P Case Shiller index due at 9:00 am ET is anticipated to drop 3.6% after 3.7% decline seen in November and February consumer confidence due at 10:00 am is anticipated to improve to 63.1 from 61.1.

CHF and GBP volatility could increase at 12:30 pm and at 2:00 pm when SNB interim chairman Jordan and BOE deputy governor Tucker deliver their speeches in Zurich and in London respectively.

Our longs in gold and EURGBP remain in progress and so is one of the shorts in USDCAD. AUDNZD short remains in progress, as well as oil long, while ES short was stoped out. ACCESS to these charts & trades: http://ashraflaidi.com/products/sub01/access/?a=607 CLICK HERE to Subscribe: http://ashraflaidi.com/products/sub01/

Germanys lower house voted in favour of the Greek bailout on Monday. The yen rebounded to lead the market while the euro lagged. Japanese retail sales are the highlight of Asia-Pacific trading. Japan Jan retail sales rose unexpectedly. Mondays Premium Intermarket trades include 4 charts on US crude oil vs. CRB & multi time frame analysis EURUSD.

Opposition support helped Merkel easily pass a vote on the Greek bailout despite 63% of Germans opposing in a recent poll. There are questions about the vote in the upper house but it should pass as well.

The euro stabilized in US trading. After falling to 1.3366 early in the session, it rebounded to 1.3420. Staunch German opposition to increasing European bailout funds weighed on the common currency. Other negative headlines included a downgrade of the outlook for the EFSF from S&P and the ECBs Nowotny forecasting a mild recession. Spain also said it would ask the EU to raise its deficit target.

Economic data was light with US pending home sales rising 2% compared to the 1% expected.

The story in the session was commodity currencies. USD/CAD matched the highest levels since February but the abruptly reversed as stock market sentiment improved. Month-end flows and pre-LTRO positioning are beginning to have an effect.

Japan Retail Sales

The lone indicator on the Asia-Pacific docket is retail sales at 2350 GMT. The consensus is for a 0.1% decline after the previous 2.5% rise. Lately, the yen has been more sensitive to negative economic news and that may continue.

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As the ECB unleashes its LTRO-2 this week, the BoE starts off its QE3 and the Fed maintains hints/hopes of QE3, oil markets may well start worrying about a potential SPR2--a 2nd round of strategic petroleum reserves release from the 28-nation International Energy Agency (IEA), following last Junes release, which we called it QE for the oil market. As central banks asset purchases support equities (and commodities), energy-importing nations may have little choice but to push for SPR2 despite the recent strengthening in their currencies against the greenback. Here are the latest Premium Trades on US crude, EURUSD, S&P500 with 4 CHARTS on EURUSD & Inter Commodity Technicals DIRECT ACCESS: http://ashraflaidi.com/products/sub01/access/?a=607 CLICK HERE to Subscribe: http://ashraflaidi.com/products/sub01/

G20 will be more involved only after the Eurozone increases financial firewall; Italian and German bond auctions; Eurozone M3 grew and Italian business confidence declined; ECB deposits remain elevated. Market turns to pending home sales and Dallas FED manufacturing. Remaining Premium trades are shorts in ES (Emini S&P500), AUDNZD & longs in gold & EURGBP. Longs in US crude and EURUSD were all done.

The USD is mixed in the ongoing session. It trades weaker against JPY, unchanged against GBP, AUD and NZD and stronger against the rest of the majors. European equities are losing 1%. The relative strength winner is JPY.

G20 meeting in Mexico resulted in an increased pressure on the Eurozone to raise the size of its bailout fund if it wants the IMF to become more involved. Germany which is the biggest national contributor has been sending conflicting signals but it seems that its opposition has softened. German Bundestag will vote today on the second Greek financial aid at 2 pm GMT (9 am ET) and the decision whether to back plans to combine EFSF with ESM should be made in March.

The Eurozone will attempt to sell EUR 24.5 bln worth of bonds this week, significantly above last week's EUR 9.85 bln. Italy was the first in the line and it reached a full take up (EUR 8.75 bln of 6 month and EUR 3.5 bln of a bill maturing 12/20/2012). The 6 month bill was sold with 1.202% yield, the lowest since 9/2010. Germany sold EUR 2.545 bln (target EUR 3 bln) of 12 month bond with yield and cover only marginally changed compared to the previous auction.

On the data front, French January PPI fell to 4.2% from 4.6% y/y, Eurozone monetary aggregate M3 grew 2.5% on annual basis, up from previous 1.5% and Italian business confidence declined to 91.5 in February from January's 92.1.

ECB deposits continue to remain elevated at EUR 477.32 bln on Friday, about EUR 2 bln more than on Thursday. It will be interesting to see how the Wednesday's LTRO will impact the deposit facility.

Pending home sales due at 10:00 am ET are expected to grow 1% in January after 3.5% contraction seen in December and Dallas FED manufacturing due 30 minutes later is anticipated to improve to 15.9 from 15.3.

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The yen slumped and the euro soared on Friday as traders are forced out of long-held positions. GBP was the best performer on Friday while JPY lagged badly. The Commitments of Traders data showed a sharp drop in JPY longs. Aussie PM Gillard wins Party lead comfortably, while European leaders look into agreeing on combined bailout fund. All oil & EURUSD long hit their Premium targets.

Australian Prime Minister Julia Gillard won the vote for the leadership of the Labor Party by a comfortable margin of 71 to 31, causing little reaction in the Aussie.

European leaders are set to reach an agreement to boost the Eurozone rescue fund by combining the current EFSF fund (now at E250 bln) with those of its successor ESM (E 550 bln) to attain a combined total of E750 billion. All eyes will be on this week's 2nd round of LTRO tender from the ECB, which is estimated to meet about E 400 bln in demand from European banks.

CFTC positioning data showed JPY longs scrambling to the exits, falling to +17K from +29.5K in a move that likely continued since the data was collected at the close on Tuesday. EUR shorts were pared to 142K from 149K, cable shorts were cut to 31K from 41K. The commodity currencies saw only small changes.

It was a relentless squeeze on Friday that continued right to the close as USD/JPY rose above 81 and EUR/USD hit 1.3487. There wasnt a particular catalyst for the moves but the market is wary of Wednesdays LTRO and the potential for a lull in the European sovereign crisis.

The ECBs Weidmann and Nowotny hinted that the upcoming LTRO will be the final one. Germany also softened in its opposition to increasing the ESM as Schaeuble broke ranks with the hardliners.

US economic data improved with the final reading on Feb consumer sentiment at 75.3 versus 73.0 expected. The improvements were not enough to sway the Feds Williams (voter) who stopped just short of calling for more QE in a speech. Meanwhile Bullard said he would need to see slowing growth and falling inflation, something he believes is unlikely with oil prices rising. Plosser, a consistent hawk, said he is against buying MBS.

Brent crude hit $125 and WTI nearly hit $110, leading the IMFs Lipsky to warn that high prices are a downside risk to economic growth.

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