Things turned around overnight with UK Industrial and Manufacturing Production both beating consensus. Sentiment is that the UK economy might not be as bad as thought as exports were healthy in the Trade balance.
In Germany the Constitutional Court is hearing arguments against the ESM and Fiscal pact, a decision on the ESM is not expected today, in fact there is talk from Market News that the judges proposed a 2 part decision, the first to be on the "injunction" which would come first and may not come for 3 weeks (the market earlier did not expect a decision from the court today, but seemed to expect a decision very soon). The second stage of the decision may not come until early 2013, which would address the constitutional question of the ESM and ultimately its ratification.
"a delay could have “serious economic consequences” for the Eurozone as well as Germany, and in turn would risk placing the entire euro project “in question,” Schaeuble warned."
An injunction “will be interpreted by the foreign press as ‘euro-rescue is halted’” said Constitutional Court President Andreas Vosskuhle, during a hearing into the injunctions sought by opponents of European rescue fund.
“It is clear that this constitutional court cannot hold a full substantive, but rather a summary examination, given the tight time constraints” of the temporary injunction requests, Vosskuhle said. “That means that a final decision can not be taken in this hearing today about the constitutionality of the ESM, the Fiscal Pact and its accompanying laws.”
The ESM was originally scheduled to be online as of July 1st, however opponents within Germany have set that back...
"Opponents argue the ESM and Fiscal Compact will permanently curb the German parliament’s budgetary powers, and would therefore require a change of the constitution to be approved. They also argued an injunction would not be especially damaging, given the existence of the EFSF."
With little Tier 1 data in the US, much of the focus will be on Germany today.
Both Italian and Spanish 10-year yields were trading down, Spain below 7% apparently as a result of the EuroGroup reiterating the EFSF (temporary bailout mechanism) is able and willing to buy bonds in the secondary market (which would presumably lower yields-something the ECB's SMP program had been doing until it went quiet about 4 month ago). Again, this is known fact, it has just been reiterated and as such has had an effect on yields.
There was also an Economic Finance Ministers meeting in Europe today. Apparently there wasn't much in the way of new "news".
As for the US we saw the gap higher and in to Friday's gap lower as I have been expecting, gold also moved higher, apparently at least in some part due to F_E_D dovish talk.
From Reuters:
Three top Federal Reserve policymakers on Monday laid the groundwork for a third round of bond purchases, saying the U.S. recovery was weak and unemployment far too high.
"We are right at that edge, that if economic data keep coming in below our expectations -- and our view is we are not making progress on our mandates, or we don't expect to make progress on our mandates -- then I think we would need more accommodation," San Francisco Fed President John Williams told reporters after a speech in the resort area of Coeur D'Alene, Idaho.
But, underscoring the divisions at the U.S. central bank, Richmond Fed President Jeffrey Lacker reiterated his opposition to a new round of stimulus in an interview with Bloomberg Radio.
Speaking in Bangkok earlier, two of the Fed's most dovish policymakers were even more adamant.
"Additional monetary accommodation is needed to more quickly boost output to its full potential level," Chicago Federal Reserve Bank President Charles Evans told the Sasin Bangkok Forum. "The economic circumstances warrant extremely strong accommodation."
Addressing the same forum, the president of the Boston Federal Reserve, Eric Rosengren, backed that view, saying he saw slower growth and higher unemployment than most of his colleagues.
"So far data has been coming in weak and I gave a weak forecast myself," he told reporters after his speech. "I think it's appropriate to have more quantitative easing."
While on the topic of Central Bank action/Easing, we get this from the FT from Draghi of the ECB:
Draghi pledges further action if needed
“Within the limits of our mandate, we will do everything that is needed to improve the situation in the euro area from a price stability viewpoint,” Mr Draghi said.
The ECB president’s comments suggest further measures – such as more cuts to the benchmark rate, negative deposit rates and further sovereign bond purchases – cannot be ruled out.
As mentioned, there's not much in the way of Tier 1 economic data for the US today, we did see the NFIB Small Business Optimism Index
| Released On 7/10/2012 7:30:00 AM For Jun, 2012 | ||||||||||
|
Although the miss from consensus doesn't seem that large, this index has been slowly moving higher and this is the largest drop in 2 years and also the lowest level since October of 2011. Whether this is a temporary blip (noise) or a reaction to Obamacare or something else, it is quite a change in character for the index in a very short period of time.
Crude has been elevated quite a bit above its normal FX correlation seemingly on event risk stemming from the Turkish/Syrian clash of recent, however some new data from China may also put the squeeze on oil as well as having broader economic implications.
"In June Chinese crude oil imports plunged from over 25 million metric tons to 21.72 MMTs, the lowest since December, or about 5.3 million barrels a day, down over 10% from the previous month's record import. While the number was still quite higher than the 19.7 million tons, the sudden drop is concerning, especially since the price of Brent slid materially in June, and if anything should have resulted in even more imports if indeed China was merely stockpiling crude for its new strategic reserve facilities. "
Tomorrow at 10:30 we have the EIA Petroleum Report as well.
Finally with all that has gone on overnight (I think the German Constitutional Court news has contributed significantly to volatility as the ESM may not be functional until 2013, which would most likely be far too late to help Spain and probably Italy), volatility has been high. Take a look at EUR/USD and ES.
EUR/USD since today's US 9:30 open.
Yesterday I proposed a theory regarding AA's short term positive divergences, the market entering the gap down and seeing a sell-off from there...
Whether it held water in the case of the market or not, our near term expectations have been met as the market has entered the gap area and started to retreat from it. It's still early trade and early trade is often deceptive trade, but o far short term expectations are on track.
Updates on the way...
No comments:
Post a Comment