Intraday Market Thoughts

Euro Firms Despite Higher Portuguese Yields, US GDP Next

by Adam Button
Jan 27, 2012 12:49

Greece PSI talks still ongoing; full take up in Italian auction; Swiss KOF declined, Eurozone M3 growth lower; Portuguese yields soar; ECB deposits decline. Key event is Q4 GDP followed by UoM consumer sentiment. We had 7 new Premium trades yesterday evening, with 4 charts on Gold, EUR, US crude and Eurozone spreads. Focus on EURUSD, ESH, CLF and gold.

The USD is weaker in the ongoing session. European equities are in the -0.2% to +0.3% range and the relative strength winners are NZD followed by AUD.

Even though negotiations on Greece PSI continue and a deal has not been reached yet, the EU commissioner Olli Rehn said today that an agreement will be accomplished very soon, either today or during the weekend. ECB's willingness to participate in the swap is still being discussed.

Italy had another solid auction today as it reached a full take up of EUR 11 bln. EUR 8 bln July 2012 BOT sold with average yield 1.969%, considerably lower compared to previous 3.251. However, bid to cover declined to 1.35 from 1.69.

Next week, Italy and Spain are looking to issue a debt worth of EUR 16 bln vs. EUR 10.1 bln this week.

On the data front, Swiss KOF leading indicator declined in January to -0.17 from December's 0.01. This is the 9th monthly decline in a row and the result is the worst since July 2009 and December M3 money supply rose in the Eurozone annually by 1.6%, somewhat lower compared to previous 2%.

With spotlight on Greece PSI talks and US QE3 hints, market participants are overlooking soaring Portuguese yields (5 year yields nearly 20% and 10 year yielded over 15% earlier today) and the chatter about the need for a second bailout. On Wednesday, the head of Portuguese industry confederation told Reuters that additional EUR 30 bln is needed.

ECB deposits declined to EUR 464.8 bln on Thursday.

The ECB president Mario Draghi will kick off the NY session today at 8:15 am when he delivers a speech at the World Economic Forum in Davos.

The key event will come at 8:30 am when Q4 GDP is due and is expected to improve to 3% from previous 1.8%. The GDP price index is seen lower at 2.0% from 2.6%

The last report of this week is final revision of January UoM consumer sentiment that is expected to be revised higher to 74.2 from initial 74.

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