Intraday Market Thoughts

Onto UK Job Figures, German & Portuguese Auctions

by Adam Button
Jan 18, 2012 9:14

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

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

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

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

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

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

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

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