Weaker global demand for China’s exports due to a slowing global economy continues to drag down China’s manufacturing totals. In November, China’s manufacturing fell to a 32-month low of 49 on the Purchasing Manager’s Index.
“The November PMI dropped further to below the boom-bust line of 50… indicates that the economic growth pace would continue to moderate in the future,” said Zhang Liqun, a researcher with the Development Research Centre of the State Council.
Source: BBC News
I hope everyone here in the US had a great Thanksgiving yesterday, though the same can’t be said for the markets. We are still in risk aversion mode as the Euro debt crisis continues to plague the global economy so the US dollar has been the favored investment vehicle of choice.
Today is a shortened session here in the US with the stock market open for a half-day session. There is likely to be little action for stocks so the correlative effects of market movements will be minimal. However, it must be noted that with decreased volume there is sometimes increased volatility.
While there is no news due out for the US session, a quick recap of this morning’s news shows that confidence figures in the Euro zone came in worse than expected. While this is not surprising, yesterday’s reports of German GDP and confidence figures were positive. GDP in Germany was 2.5% YoY, as expected. IFO confidence figures all cam e in better than expected which shows that Germany is still moving along, despite the bond auction disaster from earlier this week,
In the UK, GDP figures also came in as expected, showing .5% growth which is not a great figure. It is for this reason that the BOE has been ultra-accommodative despite the high inflation they are experiencing.
Also in the Euro zone, Portugal had their credit rating reduced to junk status, and they have been all but an afterthought as the markets have focused on the Spanish banks and Italy’s government debt.
The picture continues to worsen in the Euro zone and the push for a Euro bond is picking up traction, for those who still want to see the Euro succeed. As this situation drags out, the global economy will continue to suffer and a solution will not be forthcoming overnight.
But we are seeing a bit of a morning bounce here as perhaps some of the selling was overblown. Risk still remains at heightened levels so I’m going to continue with the short-term trading themes until more clarity emerges.
Today is “11-11-11” and folks have been waiting a while for this as sometimes the wackiness that ensues on days like today will leave you scratching your head. But today is also Veteran’s Day here in the US, so it is a bank holiday which means that we could see reduced volumes in the currency markets.
However, the rest of the world is not sleeping so we must turn our attention to what is taking place around the globe. Today is an extremely light day of news, so focus still remains on Italy and the Euro debt crisis. Global stocks are higher to start the morning.
In Italy, the upper House (Senate) has agreed to the austerity measures put forth so we are now awaiting for approval from the lower House. Should this go smoothly, then Berlusconi could step down by the end of next week. Part of the problem though is that nothing ever goes smoothly. Right now the leading candidate to replace him is Monti, who is scene as a “technocrat” and seemingly capable of handling financial matters.
In Greece, the new unity government is being voted on with Papademos as the interim leader. While there won’t be a pop quiz on these names later, it should be important to note that there is a serious shift toward leaders with financial backgrounds assuming power in these countries. This is intended to instill confidence that some of these European countries can get back to fiscal sanity.
On the news front, China has increased lending to support its economy which is reflected by some risk appetite in the marketplace. Between Chinese growth and potential European stability measures, markets are looking to take back some of Wednesday’s losses. Italy’s austerity is a good start.
In the UK, PPI data came in lower across the board which could mean that they are finally seeing some relief form inflation. CPI data has remained elevated for some time and the BOE mantra that it would come down eventually because of austerity measures may finally be coming true. However, the recent tone at the BOE has been dovish so do rule out further QE if the economic data worsens.
Speaking of worsening economic data, there are more and more calls out there that Europe is going to slip into recession so there are increased calls for the ECB to step up in the debt crisis. The ECB so far has been refusing to be a buyer of last resort for Euro debt so that has given the market the ability to drive yields higher, as we saw the other day in Italy when their 10-year bond yield rose to over 7%. It is now back in the 6.5% range but shows that the ECB is unwilling and perhaps unable to provide better support.
Here in the US, stocks and commodities are set to open higher and today is a bank holiday so there should be lower volume in the currency markets. U of Michigan consumer confidence figures are due out later this morning but I doubt they will have a material impact. My guess is that today will be an “inside day” with little movement either way, though end-of-the-day risk aversion could crop up as fears about Europe come back into focus.
And lastly from the rumor mill, there has been some chatter that Japan had been secretly intervening in its currency vs. USD, as reflected by the price action we saw above 78. Since this has been noted, the Yen has started to appreciate a bit. Whether this is true or not is anyone’s guess but it makes for good conversation.
So at this point I am still erring on the side of caution and am looking to keep my trading to the short-term unless we see a major move which I doubt will happen on a light volume day.
Once again all eyes are on Greece this morning as we are running the gamut of Greek theater. First we saw the drama unfold during the painstaking debt crisis resolution and now we’re watching the comedy of errors that is taking place with misstep after misstep. Will we eventually see the tragedy? And whom would it end up being tragic for: the Euro zone or Greece itself.
The G-20 meeting now taking place has essentially been hijacked by the recent events taking place in Greece and now a series of additional hurdles must be navigated in order for the Euro zone to survive in its current form. The first hurdle is tomorrow’s confidence vote which may end up seeing the current regime ousted, including the Prime minister Papandreou. This could prove disastrous as they scramble to form a new coalition and to determine who is actually in charge. Rumors and false headlines are now hitting the wires saying everything from Papandreou resigning to the referendum may be canceled.
This brings us to the second hurdle, should they survive the confidence vote tomorrow, which is the idea of the referendum on the bailout. While Greece may have been intending for this vote to decide on just the bailout, EU leaders have now made it perfectly clear that this referendum would be over whether or not Greece wants to remain in the Euro zone. All aid money that Greece was supposed to receive is now being withheld until this vote.
So there is a much greater possibility that Greece will not be a member of the euro zone by year- end. Who this hurts more remains to be seen. The problem of contagion though is starting to rear its head again as yields in Italy are increasing as they rush to cut deficits.
This all comes ahead of this morning’s ECB rate decision, the first under new chief Draghi from Italy. There is some speculation that he could issue some sort of statement to the effect that the ECB will be the lender of last resort for the EU or that he could even go so far as to reduce interest rates. As I mentioned yesterday, there is a distinct possibility he could do the latter.
**Edit for breaking news** Draghi cuts interest rates by 25bp!
However, yesterday’s FOMC statement was quite different with Bernanke lowering the Fed’s economic forecast yet again as they have been miserably behind the curve. Later in the day in his speech, he said that QE3 was a potential option which gave the market hope of the free-money trade being able to continue. Europe has continued to run with this theme as US dollar weakness is driving the forex markets this morning, despite all of the risk emanating for the Euro zone.
On the data front, there isn’t a whole heck of a lot going on, with the US initial jobless claims expected to show another 400K unemployed. Later this morning ISM Non-Manufacturing figures are due to be released. Tomorrow’s NFP report is the big one to watch.
Last night, New Zealand’s unemployment rate ticked higher to 6.6% from an expected 6.4% showing signs that economy is potentially cooling.
Other than these reports, the focus of the markets will be on what happens in Greece and how the Euro zone and the world reacts. Pressure on the Greek PM to withdraw the referendum has to be immense and whether or not he is even in power next week remains a mystery.
In the meantime, the anonymous rumors will dominate the internet so take them with a grain of salt. This could produce very choppy market action over the course of the next few days, which is a short-term trader’s dream, but a long-term investor’s nightmare.
So remember to take what the market gives you and to cut losses quickly and move on to the next opportunity. With uncertain markets conditions, one small error could turn into a huge mistake in not dealt with swiftly!
Well the Euro debt crisis is finally over, or is it? So what happens next? That folks, is the million dollar question but first we should take a look at the events of the last 24-hours and what was revealed as the definitive resolution.
Yesterday there was some market volatility and initial risk aversion as the rumors were making the rounds and we were expecting the announcement to take place some time near the end of yesterday’s trading session. When it appeared as thought this process would be delayed into late last night, the markets reversed and risk appetite increased in anticipation of the announcement.
The announcement finally came late last night and here are the highlights of the plan of action:
It is often said that the waiting is the hardest part, and that is exactly where we are in the global market dynamic with the Euro debt crisis continuing to linger. This past weekend’s Summit has come and gone without producing anything more than the continued conjecture that has been plaguing the markets. Supposedly this Wednesday will be the day that produces the final resolution, though I am skeptical that this will be the end.
There are short, medium, and long-term issues that need to be worked out and to think that this will all be solved by Wednesday is silly at this point. This is after all, the 13th emergency summit in the last two months! The immediate problem is Greece and their sovereign debt issues and so far the answer seems to be asking private bondholders to take up to 60% losses on their holdings and not calling it a default. This then causes the intermediate term problem of bank losses and now requires re-capitalization. The EFSF right now remains at 440 Billion euros and is seemingly far too small to handle all of the potential problems. There has been no credible talk of how to increase that fund.
Finally, this brings us to the long-term issues of how to stop the contagion of this crisis spreading to the other debt-ridden countries, most notably Spain and Italy. The moral hazard created by potentially retiring Greek debt without a re-structuring opens the door for other nations to seek the same terms. Meanwhile, credit ratings will continue to fall (now France is looking at a downgrade) which will in turn increase the cost to service debt. The ECB has not gone to the printing press just yet, as its mandate of maintaining low inflation is still tantamount and German remembrance of the Weimar Republic and its hyperinflation is something they never want the chance to repeat.
So Wednesday will be the day of reckoning, and so far the markets have been moving to the upside despite the risk that still persists. Perhaps the market just wants to hear that there is a plan, regardless of the details. My feeling though is that Wednesday will disappoint and that the markets have been in “buy the rumor” mode so we may see “sell the news” on Wednesday. Stay tuned.
In addition, PMI figures in Europe came in worse than expected across the board showing signs of an economic slowdown, though New Orders figures were higher. This reversed some risk appetite the market had been experiencing in the Asian session, as Chinese PMI figures showed the fastest manufacturing growth in nearly 4 months which was also better than expected. Japanese exports also improved and came in better than expected.
This week is also marked by interest rate decisions in Canada, New Zealand, and Japan. While none are expected to change policy, the Japan rate decision could get interesting as the Yen has been strengthening vs. US and is now at the 76 level which many believe may be the level where the BOJ will intervene. While they most likely won’t act before Wednesday’s Euro debt summit, the rate decision the following day could produce fireworks if the deem the global situation to be stable.
Meanwhile, US stock earnings continue to come in better than expected and it seems as though markets want to go higher if this pesky Euro debt crisis would just go away. My guess is that even though markets have been moving higher, Wednesday’s announcement may prove disappointing which could cause some short-term selling which in my opinion may be a long-term buying opportunity.
This morning all eyes are on Athens where the Greek rioters are protesting against further austerity measures which are to be voted to ensure that Greece is taking the steps necessary to continue the bailout discussion. The Troika will be reporting the economic state of affairs in Greece but so far the sentiment has been that that was Greece has done is insufficient to date.
Yet there is some positive news coming regarding the EFSF, though at this stage they are just rumors and not confirmed. Supposedly, the EFSF will be able to buy bonds on the secondary market provided there are no bank solvency issues. What this means is that they can be a “constant bid” to attempt to keep rates lower and then they can re-package and flip them or hold to maturity or whatever. However, the size of the fund is still in question and whether or not they will leverage that remains to be seen.
Producer prices in Germany came in slightly higher than expected, and the German government GDP forecast showed a growth rate of 1%, much lower than the 2.9% they have experienced.
In other news that just hit the wire, in Libya Momar Gaddafi is being reported dead.
Earlier in the UK, retail sales figures came in much better than expected, showing a monthly gain of .7% vs. an expectation of .2%. This could be a function of higher price expectations because the BOE is seen as being inflationary. But I must say, so far the BOE has been wrong in many of their economic assessments and should inflation persist, the UK economy could come to a grinding halt.
Here in the US, Initial jobless claims came in at the usual 400K, and later this morning we will get existing home sales figures, the leading indicators, and the Philly Fed. Throw in a little Fed speak and there is just enough to inspire some volatility.
We are very range-bound at these levels as the Euro debt crisis continues to maintain a stranglehold on these markets and the anxiety increases with every TV report of another Greek rioter lobbing a Molotov cocktail.
Yet US stock earnings have been coming in positively despite the economic climate as corporations are lean and mean and sitting on mountains of cash, yet the market uncertainty thanks to the political gamesmanship in Washington is keeping them from hiring. While lack of demand is always cited as the “cause”, it is actually the effect of bad policy and not the other way around.
The super-committee that is charged with deficit reduction here in the US is likely going to be ineffective so it will be more of the same. However, these problems seem minor compared to what is taking place in Europe and this weekends meeting may produce progress toward resolution, or it may not.
Meanwhile, my short gold trade triggered yesterday as the Bear Flag pattern completed, with an initial price target of $1500, and then $1440.
Tomorrow could be a risk aversion kind of day, so today we may see some cautious risk taking, though today is likely to be an “inside day” producing neither new recent highs or lows.
At this point the rumor mill is in high gear so there could be mid-day volatility based upon unconfirmed reports. This market is more conducive toward short-term trading at this point, as the uncertainty is still high and risk at a premium.
Yesterday’s market turn-around exemplifies the type of market action we may continue to see until the Euro debt crisis is finally resolved to the satisfaction of the world. Yes, I said the world. Markets yesterday were selling off on lowered expectations that this weekend’s European summit would produce that resolution, but a rumor hit the tape from a newspaper in Euro that said that France and Germany had agreed to expand the size of the ESFS to 2 trillion euros, much larger than had been previously agreed upon.
This sent markets screaming higher into the close as it was risk-on again and the correlations not only held up but also lead the way. This kicked the weaker economic data to the back again as the hope of a credible deal left markets wanting more. Moody’s attempted to rain on the risk appetite parade by downgrading Spain again but the markets will have none of it. Riots in Greece make the Occupy Wall St. crowd look like rank amateurs as the new austerity measures are announced.
So we have the carry-over affects this morning taking place, and better than expected economic data from today’s docket has confirmed the move. US corporate stock earnings are starting to look better, though Apple missed earnings for the first time in 4 years last night. The markets seemingly want to go higher if not for the specter of risk hanging over them in the form of the Euro debt crisis.
In the UK, the BOE released the minutes to their most recent rate policy meeting which showed a unanimous vote to expand their QE program by 75 billion pounds, even though yesterday’s inflation data pushed above 5% for the first time in 3 years. BOE policy-makers believe this to be a temporary spike, but that remains to be seen. Especially if a Euro debt resolution allows markets (including commodities) to fly again.
Here in the US, CPI data came in as expected and slightly lower which some might find surprising after yesterdays higher than expected PPI data. Core CPI came in at 2% vs. an expected 2.1% and the headline number came in at 3.9% as expected. Indeed the Fed is dodging bullets as the money-pump continues. My feeling is that it is just a matter of time before inflation rears its ugly head and when it does it will be fast and furious.
But the best news of the morning may be the housing starts figures which show a gain of 15% vs. an expected 3.3%. Recent lousy weather may have distorted those figures as housing starts were delayed, but nevertheless it is an impressive number. Building permits came in lower than expected, posting a decline of 5% vs. an expected decline of 2.4%.
It will be interesting to see how the rest of the day plays out as stocks here in the US are set to open higher and risk appetite is also increased. However, a closer inspection of the numbers and rumors may prove to warrant a more reserved position as perhaps the market is getting a bit ahead of itself.
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