Plop

I think it was less than a week ago, although a search of Euro or Europe brought too many results to be sure, I said words to the effect of, "Before the US Debt Ceiling becomes a market worry, the market will do as it always does and go back to fretting over Europe".

It turns out there's pretty good reason, I guess Germany doesn't have the same finesse we do in concealing bad news with seasonal adjustments (or maybe they do!).

Last night I told you that the EUR/USD strength was more about Euro strength than $USD weakness, that's because the ECB has been actively intervening in the currency while everyone else races to the bottom.

After a somewhat complicated German 2012 GDP print that came in below consensus of 0.8% at 0.7% with the government accounting for 1.0% of GDP, a report from the German State Office indicated that Q4 GDP likely shrank by .5%. The net effect is the first quarter of sub zero growth, you get a second quarter during Q1 2013 and you have an official recession in Germany, that is the FEAR that was behind the PIIGS contagion of the core, Germany is as core as you get and a recession there is contagion; this is exactly what the fear has been in the EU since the acronym "PIIGS" was coined.

The other big overnight news was the reported end of the JPY collapse, with the USDJPY now trading at 88.30, some 130 pips lower than last night's highs, following various comments from various Japanese officials, some of which may have been misinterpreted, but all of which served to remind the market that the period of promises by the BOJ and Abe is over. Now is the time for action, and sadly as has been the case in Japan in over 30 years, it is the "action" part that is sorely lacking. Either way, the global non-US based risk rally came to a screeching end with the end of the JPY collapse, and hopes that Japan just may succeed in clawing its way out of a deflationary hole on the back of currency debasement without actually seeing a comparable surge in bond yields that would crush its banking sector.

 The USD/JPY turn overnight, it is substantial...

And the leading negative divergence in ES last night actually stayed in place, there's a slight positive in place now so we'll see if there's a fade..

More to come...