Intraday Market Thoughts Archives

Markets improved as Italys Senate passed the vote on the austerity, rench rating was affirmed at AAA, while ECB vice president Lucas Papademos was selected as new Greek PM. We have 3 new DUAL Premium Trades on EURUSD ahead of end of Friday session and early Monday Asia.

Italys Senate passed the vote on the austerity package today and agreed to form a new government that may be headed by ex- EU Commissioner Mario Monti.

German chancellor Merkel's confirmation that there are no plans to create a two level Eurozone as was speculated over the past few turbulent days also helped sentiment.

US November preliminary consumer confidence rose to a 5-month high of 64.9 from 60.9, bearing expectations of 61.5

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Euro political uncertainty as highly respected EU Commissioner Mario Monti is expected to replace Italian PM Berlusconi and former ECB member Lucas Papademos is set to be sworn in as Greek PM today. US consumer confidence due next. All of Thursday's Premium trades remain in progress.

But the so-called Monti-Papademos bounce faces more questions such as whether austerity conditions will be agreed upon before the EUR 8 bln tranche is deployed in Greece and the 2011 budget to be passed.

Latest Premium Intermarket Insights have include 2 chart on EUR vs US Crude vs S&P500 w/ fresh trades on EURUSD vs. USDCAD vs. EURJPY and silver. http://ashraflaidi.com/products/sub01/access/?a=548 Non-subscribers click here: http://ashraflaidi.com/products/sub01/

Meanwhile, traders chatter suggest the ECB may have bought as nearly EUR 3.5 bln in Italy, Spain &Portugal bonds yesterday, in addition to another EUR 5bln earlier in the week.

Both S&P and Moody's told MNI they have no further comment on France debt rating following yesterdays news that S&P subscribers received a message saying that the Bank Industry Country Risk Assessments (BICRA) of France was downgraded to "NA". S&P then issued a statement and said the message was automatically sent to some subscribers of the S&P's Global Credit Portal by error and is "investigating the cause of the error". Despite these denials, trades continue to expect a French rating review is on its way. Moody's has already warned it may change its stable review and Aaa on France.

Japanese Fin Min Azumi said FX intervention to stem yen strength was always in the nations interest but has been unable to forge common interest with G7 nations to attain coordinated yen selling.

Earlier today, UK Oct input PPI -0.8% m/m from +1.8% m/m, while Oct output was unchanged after +0.3%

US Data Ahead: At 14:55GMT, Nov Consumer Sentiment Univ of Michigan expected 62.0. At 18:15 GMT, day 2 of ECB/Fed symposium in Chicago. Federal Vice Chairwoman Janet Yellen speaks 18:15 GMT, followed by ECB board member Orphanides at 22:15GMT

Sentiment bounced on Thursday after Italy took steps to form a new government and Greece named a Prime Minister. CAD and EUR were the top performers with NZD and AUD lagging. The Asia-Pacific calendar is but a report about JPY intervention is circulating. A new chart on OIL/EUR and S&P500 has been added to Thursday's Premium trades.

A new government is seen in Italy within days and it is rumoured to be led by former European Commissioner Mario Monti. Negotiations are ongoing to pass austerity measures by the weekend and Berlusconi is expected to step down immediately afterwards.

The news pushed Italian 10-year yields back below 7% and sparked a modest rebound in risk appetite. Sentiment was further lifted when former ECB member Papademos was sworn in as Greeces new PM. EUR/USD bounced 150 pips to 1.3650 early in US trading before settling at 1.3600.

Volatility kicked higher and risk assets sold off when S&P errantly sent some clients a message indicating Frances sovereign rating had been placed on review for a downgrade. It took nearly two hours for a retraction but sentiment never fully recovered. Persistent rumours about sovereign downgrades, plans to remove countries from the euro area and political discord also undermined whipsawed traders.

Economic data was light as US initial jobless claims fell to 390K from 397K and beat the 400K expected. The Canadian dollar outperformer after an unexpected trade surplus and a rally in oil to $98.

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Despite the earlier rebound in EURUSD, the trend remains clearly down. Volatility remains in the rise. EURUSD gained 8.5% in 21 days before losing HALF of that move in the following three days. 5 trades hit all targets. 2 were stopped out and 3 remain in progress. Click here for direct access to the Premium Intermarket Insights http://ashraflaidi.com/products/sub01/access/?a=548 NOnSubscribers can get 1 week trial here: http://ashraflaidi.com/products/

With Germany already contracting, the ECB already easing and the EU-US LIBOR spread at 7 month lows, the dynamics are moving in line with our September piece. Here is our latest article charting these latest developments http://ashraflaidi.com/articles/charting-euro-macro-yields-libor-spreads.asp

Ashraf Laidi

Ashraf's earlier appearance on CNBC's Closing Bell discussing Italy's debt, what the ECB must do and some insights on Portuguese, Spanish & Irish bonds. http://video.cnbc.com/gallery/?video=3000056423

Italian bonds crashed below sustainable levels on Wednesday, sending shockwaves through financial markets. USD and JPY led while AUD and EUR lagged badly. Australian employment is the tier one data in Asia-Pacific trading. 7 of our new Premium Trades are arleady in progress, including that key AUDNZD chart ahead of the Aussie jobs report.

We have been warning about the creep lower in Italian bond prices for weeks and when bond clearing house LCH finally raised margins it triggered a cascade of selling that pushed Italys cost to borrow for 10 years almost three-quarters of a point higher to a record 7.50%.

Unless we see a dramatic turnaround in the coming days the yield implies Italy will be forced to turn to its euro area partners for aid. The overarching problem is that Italys debts are the fourth-largest in the world and easily larger than all the other PIIGS nations combined the rest of Europe cant afford a rescue.

The intermarket reaction to the possibility of an Italian bailout or restructuring was intense. EUR/USD fell 300 pips to 1.3521 and other risk assets posted similar, drastic declines. The S&P 500 fell 3.6% to 1129. Precious metals were resilient to a point but later caved.

The way forward for Italy is perilous. The governing coalition is aiming to pass austerity measures by Sunday with Berlusconi stepping down afterwards. But leaders have yet to present the package of austerity measures, let alone secure the support to pass them. At the same time, the EU is asking for further austerity measures and the bond market is prepared to punish any slip up.

In Greece, Papandreou officially resigned today but a meeting to appoint a new Prime Minister widely rumoured to be Parliamentary speaker Petsalnikos ended with an opposition party leader walking out. A new meeting has been scheduled for Thursday.

Further compounding worries are leaks about Merkels party preparing a proposal that would allow members to leave the euro area and rumors of high level Franco-German talks along the same lines.

Asia-Pacific Preview

The lone currency to underperform EUR on Wednesday was AUD. Even during a mid-session bounce in risk appetite, the Australian dollar hovered near the lows on speculation the RBA will further cut rates due to European uncertainty.

At 0030 GMT, Australia is expected to announce the addition of 10.3K jobs but a climb in the unemployment rate to 5.3% from 5.2%. The jittery market will likely respond sharply to any misses beyond 3K.

Other events include Japanese core machinery orders at 2350 (Exp. -7.5% m/m) and Chinese trade balance at 0100 GMT (Exp +$24.9B). Keep a close eye on exports (Exp +16.5% y/y) and especially imports (Exp +23.0%) rather than the headline balance.

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Ashraf will appear on CNBC-Closing Bell at 16:40 ET (21:40 GMT) discussing Eurozone debt & FX.

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EURUSD drops 2.3%, posting its biggest daily decline since August 11, 2010. Now that Italian 10-year yields broke over 7% and the spread over their German counterpart hit 5.58%, how many days will it take before getting help, or for the austerity package to finally be passed? Greece, Ireland and Portugal were each bailed out 18 days, 15 days and 55 days after their yields hit 7% respectively. LATEST PREMIUM trades included in EURUSD, EURJPY, AUDNZD & EURGBP, Silver & Bailout/Yield Metrics. Click here for today's Premium Intermarket Insights http://ashraflaidi.com/products/sub01/access/?a=546 Non-subscrobers click here: http://ashraflaidi.com/products/sub01/access

Greek PM to meet President at 16:00 GMT EURUSD on its way of posting a rare 2% daily decline. There have been only 5 of such days over the past 3 years, 2 of which occurred last month; (-2% decline Oct 31 after referendum announcement and +2% on Oct 27 after the EFSF/Troika/recap deal). EURUSD 1 month volatility surges 10%, promising more of such days to come. EURUSD vulnerable to 1.3180 before month-end.

day as willingness to risk disappears from the market. European equity markets are deep in red and EURUSD is 200 points off today's highs.

Reports that PM Berlusconi would resign after austerity measures are approved did not help to bring down Italian soaring cost of borrowing. 10 year yield broke above 7% today and BTP futures trading had to be interrupted due to high volatility as real money accounts have been liquidating their BTP holdings. News that the margin on Italian debt has been increased on all durations by Clearnet clearing house as part of their regular risk management led to additional sales. Italy-Germany 10 year spread and Italian CDS have also reached record highs. The ECB has been buying Italian debt via the SMP as has become the norm.

The 7% threshold is closely watched as other troubled countries (Ireland, Greece, Portugal) needed financial aid after their debt reached similar levels. With the EFSF too small to bail out Italy, the situation in the Eurozone is getting dangerously close to being beyond control.

September UK trade deficit widened to GBP -9.8 bln from GBP -8.6 bln which is the worst result since data started to be collected in 1998. Record imports are blamed for such a poor print and GDP growth is likely to be negatively impacted. GBPUSD trades below 1.60 after touching 1.6114 just a few hours earlier.

Fed chairman Bernanke will speak at the Fed conference in Washington at 9:30 am and September wholesale inventories are seen higher at 0.6% from 0.4%.

NZD traders should pay attention to RBNZ financial stability report that will be released at 3:00 pm.

P Urban & A Laidi

The margin hike in Italian bonds from London-based LCH.Clearnet sent Italian yields to a new post-Eurozone high of 7.35%, EURUSD drops 200 pips to 1.3650s, Greece set to announce new government later today, China Oct CPI slips to 5.5% y/y, from 6.1%, lowest in 4 months.

Less than 24 hours after PM Berlusconis announcement to throw the towel and a short-lived Tuesday rally in Wall Street and Wednesday Asia, Europe opened in the red, driving bond yields higher, led by a 60-bp jump in Italian 10 year yields reaching 7.38%.

Exacerbating the route on global markets was the announcement from London-based clearing house LCH.Clearnet to raise the amount of margin on Italian government bonds that traders must post to insure trades against losses. This comes at a bad time when the ECB is feverishly buying Italian bonds to stem their yields. Similar moves were carried out last year when margins were raised on Irish and Portuguese bonds.

Our PREMIUM trades were squared on the EURUSD long, followed by the triggering of the short 1.3850. Several other trades remain in progress. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=545 Nonsubscribers can join here http://ashraflaidi.com/products/sub01/

MNI reminded that Italy's A rating from S&P and A2 from Moody's were both in line, while Fitch is lagging by 1 notch at A+. The last Italian downgrade from Fitch was in Oct 7. This could mean that Fitch may be next to downgrade.

On the data front, UK Sep Trade Deficit rose to GBP 9.8 bn from Augusts GBP 8.6 bn Aug, vs GBP 8.0 bln expected.

US equity futures are deeply in the red, with Dow-30 futures down 218 pts and S&P500 futured down 29 pts

Embattled Italian PM Berlusconi agreed to step down after austerity measures are passed sending risk assets higher on Tuesday. CHF and EUR were the top performers, while USD and AUD lagged. Greece could name a new PM in the coming hours and China will release CPI data due at 2:00 GMT.

Going into the day the focus was on whether Berlusconi would survive a confidence vote in Italian parliament. He did, but only because one opposition party abstained in order to avoid to minimize turmoil. In the vote, Berlusconi fell 8 votes short of a majority and the opposition immediately asked him to step down.

The euro initially fell on signs of defiance from the long-time Italian leader but it shot to session highs after he told Italian President Napolitano he will resign once austerity measures are passed. The opposition has yet to respond but the market is now expecting the austerity to pass, followed by elections early in the new year.

Greek politicians continue to drag their heels on selecting a new PM and the main opposition party refused to sign a pledge to implement the troika-mandated reforms. A local news service reported that former ECB member Papademos has been offered the job as leader and an announcement could come within hours.

The euro and overall risk sentiment are at risk of a breakdown in Italy or Greece. The Italian bond market also remains in crisis mode with 10-years hitting a fresh record 6.78% although that should come down when the market re-opens and reacts to Berlusconi's offer to quit.

Asia-Pacific Preview

The market-moving event of the session comes at 21:00 EST - 02:00 GMT when China will release the October CPI report. The consensus is 5.4% but government officials hinted at 5.5% earlier in the week after a 6.1% y/y rise in September. Indications from China suggest leaders are comfortable with some continued modest tightening early next year but no changes in 2011. Given that, it would take a significant miss (+/- 0.4%) to spark a lasting market reaction.

The calendar is nearly bare with Australian consumer confidence from Westpac at 2330 as a lone highlight. The RBA rate cut should boost sentiment further after a 0.4% gain last month. Twenty minutes later Japans current account data will be released. At 0030, Australian September housing finance is expected 1.8%.

SEE OUR AUDNZD TRADE ahead of tonight's China CPI; 2 trades fully hit targets, while 4 still in progress and silver stopped out but still bearish. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=545 Nonsubscribers can join here http://ashraflaidi.com/products/sub01/

Italian 10 year yield continues to surge; German data surprised with exports at record highs; Swiss consumer sentiment declined further; UK manufacturing production increased. Market turns to Canadian housing starts, SNB Chairman Hildebrand is due to speak and probably further push up EURCHF.

In Italy, PM Berlusconi will make a decision whether to resign or not after today's confidence vote due at 14:30 GMT as the pressure on Italian bonds increases. If Berlusconi fails to get 316 votes, he would have to face a confidence vote that will decide his future.

Italian 10 year reached a new high at 6.74% but has eased a bit to current 6.65%. Italian-German spread is currently 4.82%. In Greece, senior officials said that new PM will be announced tomorrow.

After a long series of disappointing data, German economy showed a sign of resiliency. German trade surplus increased to EUR 17.4 bln in September from EUR 11.8 bln in August and current account surplus increased to EUR 15.7 bln from EUR 6.5 bln. Exports grew 0.9% m/m which is the highest print since data started to be collected in 1990. However, as many markets that import German goods experience considerable slowdown, it is likely that even exports will decline in coming months.

Six of the latest trades in the Premium Intermarket Insights are near hitting all of their targets. AUDNZD and silver are confirming our positions from last week, while US crude oil, gold and silver remain in progress. EURGBP continues to respect its 200 WMA, while EURUSD extends its right shoulder consolidation, nearing our final target. For direct Access pls click here http://ashraflaidi.com/products/sub01/access/?a=545, non subscribers, click here: http://ashraflaidi.com/products/sub01/

More news supporting CHF bearish bias came in the form of October consumer sentiment that declined to -24 from previous -17. Quarterly confidence survey has been declining gradually since the beginning of the year. Consumers expressed fears of future higher unemployment that has been unchanged at 3% for six months.

In the UK, industrial production was unchanged in September but declined -0.7% on annual basis while manufacturing production increased 0.2% m/m and rose 2% y/y. Overall the news is slightly positive as industrial production has a lower impact on GDP growth. GBP is also benefits as traders have been focusing on Greece and Italy.

Canada housing starts due at 8:15 am that are seen slightly lower in October at 198K from 208K.

SNB chairman Hildebrand participates in a discussion at the European finance forum at 8:30 am. Considering the 200+ pip weakening of the CHF since Friday's close as a result of SNB chairman's comments, the market seems to anticipate further steps, possibly in a form of higher EURCHF floor. Any comments regarding the Franc strength could send the Swiss currency lower.

November IBD/TIPP economic optimism index is due at 10:00 and is expected higher at 42.5 from 40.3 and GBP volatility could increase further as NIESR releases its GDP estimate at the same time.

The ECB's Securities Markets Programme (SMP) has accumulated EUR 183 billion since starting in May 2010. The left chart shows weekly purchases to have reached EUR 9.5 billion as of early November, but these are well below the EUR 22 billion attained in mid-August. With the latest rush in ECB purchases of Italian bonds aiming at keeping 10 year yields below 7%, and possibly Spanish bond guying buying as the Spanish presidential campaign heats up, weekly purchases should be expected to regain their summer highs. SEE THE FULL CHARTS here: http://ashraflaidi.com/t/?hc2876

Will he quit or wont he? Italys embattled Prime Minister, Silvio Berlusconi, faces a series of confidence votes in the coming days as the Italian bond market approaches distressed levels. CAD and NZD were the top performers Monday while CHF lagged badly, followed by EUR. Australias trade balance is a highlight of the Asia-Pacific session. Oil, gold, silver trades are added to EURUSD, EURJPY, USDCAD and AUDNZD. See below.

EUR/USD fell as low as 1.3681 but has rebounded almost a full cent higher on mixed signals from Italy. Berlusconi dismissed resignation rumours but a Tuesday confidence vote could spell the end of his government.

The market appeared to like the idea of the scandal-ridden PM stepping aside. Weighing on EUR was news of low buying interest in the latest bond issue from the EFSF. The issue priced at 104 basis points above the German benchmark versus 17 bps at the prior auction.

The bond market appears fed up with Italy as 10-year yields soared to a euro-record 6.68%. A rise above 7% led to the bailouts in the rest of the euro area.

Greece was expected to announce a new Prime Minister today but the decision has been pushed back to Tuesday with three candidates said to be in the running. For the euro, former ECB member Papademos would be the favoured choice but the decision is unlikely to spark a significant move.

EUR/CHF continued to soar after comments from the SNBs Hildebrand set off a round of rumours about a higher peg. The pair touched above 1.24 after trading as low as 1.2130 on Friday.

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The S&P 500 rose 0.6% to 1261 and gold climbed to $1793.

Asia-Pacific Preview

At 00:30 GMT, Australias trade balance is expected at +3.0B and the NZB business confidence survey will be released (prior -2.0). EU finance minister also continue to meet in Brussels.

Eastern Time (NY) is now 5 hours behind both GMT and London.

As unprecedented latest Berlusconi soap opera seems, and as newsworthy are the declines of falling BTPs (Italian govt bonds, EURUSD hardly budges from its 1.3770s congestion, while the risk trade regains ground. Here are the latest Premium trades, with a focus on USDCAD, gold, US crude oil & AUDNZD. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=545 Nonsubscribers can join here http://ashraflaidi.com/products/sub01/

Ashraf Laidi

Deflationary pressure continue in Switzerland; Papademos likely new Greek PM; PM Berlusconi rumored to resign today; European data disappoints again. The ECB's securities markets program is back in play as the bank buys more Italian bonds, dragging down 10 yr yields to 6.48% from the day's high of 6.64%. Swiss deflationary pressures continue to emerge as CPI declined four times out of last five months on soaring CHF.

Risk aversion kept USD bid at the beginning of the London session sending it higher across the board. Over the past two hours, the greenback gave back a portion of its gains. EURUSD trades around 1.3770 after touching 1.3680 earlier. European equity markets are losing about 1%.

Deflationary pressures continue to emerge in Switzerland as CPI declined four times out of last five months. In October consumer prices declined -0.1% which pushed the yearly figure to -0.1% from previous +0.5%. Unemployment rate has stayed unchanged since May at robust 3%. CHF has been under pressure as the SNB's chairman Hildebrand reiterated over the weekend that the SNB could act further to negate the impact of the strong Franc. Rumors that EURCHF floor could be lifted higher have been circulating over the past few weeks and deteriorating data with negative inflation increase the likelihood of such a step. EURCHF trades 140+ points above Friday's close around 1.2345.

In Greece, new national unity government will be formed and PM Papandreou will step down so new leader that will implement the bailout plan austerity measures can be voted in. Former ECB vice president Papademos is eyed as a new PM Dow Jones reports.

Premium clients take a look at Thursdays double chart on EURUSD & silver, highlighting the return to consolidation in the latter and the ongoing trendline resistance in the latter. AUDNZD shorts still in progress, nearing the preliminary target of 1.2950. Direct Access here: http://ashraflaidi.com/products/sub01/access/?a=543

News headlines regarding developments in Greece have been impacting market sentiment for months. As the Italian 10 year yield moved above 6% by the end of October, traders' attention has been slowly but surely shifting to Italy. The situation could become more complex as the political situation is getting more unstable. PM Berlusconi asserted that he still has parliamentary majority but the increasing number of defectors could bring the government down. Even two Berlusconi's ministers questioned if the government could continue. Rumors that PM Berlusconi could step down today appeared earlier. Italian 10 yr bond yield are now dropping to 6.48% from the day's high of 6.64% as ECB buys more Italian paper. The spread between Italy& German 10 yr bond yields slips to 4.66% from the day's high of 4.86%.

Risk aversion creeps up amid ongoing wrangling on Greek politics following PM Papandreou's offer to step down, Berlusconi fights on to stay as Italian bonds extend their downfall. Eurozone Sep retail sales continued fall. See the latest on Friday's Premium trades below.

1 day after PM Papandreou won his confidence vote, he offered to stepped down to make way for a new coalition government, likely to be led by a temporary non-political personality with strong economic credentials. Papandreou & opposition leader Samaras have yet to agree between frontrunners Lucas Papademos (ex ECB VP) and Stavros Dimas (former EU commissioner with World Bank experience). The good news is that political leaders realise the importance of implementing the latest 130 bln package and keep the 8 bln tranche by year-end.

Meanwhile, EU leaders are urging Italian PM Berlusconi to step down in order to allow the full implementation of the reforms aimed at cutting Italys 1.9 trln debt. Yet Italy is already under the monitoring of the Troika, as the European Commission, the IMF and ECB are carrying out their technical assistance, laying out economic metrics and the purchasing of Italian bonds. Investors are closely watching Italian bond yields, whose 10 year yields are up at a record post-Eurozone high of 6.63%.

Eurozone Sep retail sales -0.7% vs exp -0.1% from -0.1%. -1.5% y/y from -1.0%. Eurozone Sep Sentix Investor Confidence -21.2% from -18.5% vs exp -20.0.

UK Oct Halifax house prices rose 1.2% from -0.3% vs exp 0.1%

One of our EURUSD & EURJPY Friday trades hit all targets, one EURUSD long remains in progress, another 2 unfilled. For direct access, click here: http://ashraflaidi.com/products/sub01/access/?a=543 For non-subscribers, click here: http://ashraflaidi.com/products/sub01/