Quick market update, while we learn that Buffet has been loading up on IBM, Wells Fargo and other “long term” positions. Markets reversed sharply after this mornings initial gap open. Europe is under pressure yet again, although volumes are rather muted. The Italian situation is not fixed. As we have been warning over the weeks, next up should be Spain. With the 10 year yield just crossing the magic 6% level, expect renewed Euro Debt Jitters. Below short term levels of Stoxx 50 and the ES futures.
….and the reaction to Italy’s solved problems is a slight risk off. After the initial short covering, futures have traded down and filled this morning’s gap. As we have pushed higher over the past days, the SPX has once again reached the 200 day moving average. The market is “confusing” many at these levels, as it is not breaking up, nor does it want to break below the lows. With Christmas coming up soon, trading volumes will slowly dry up and make people even more frustrated. Some chart levels below.
By Macro Story. The ES is doing some weird stuff this evening. In fact over the past few days it has begun decoupling from the EUR and AUD both of which have correlated very tightly. As those currencies both break lower ES refuses to follow.
The result, mainly since November 1 has been a growing divergence setting up at a minimum a simple arbitrage trade. As an example this evening ES at one point was up 1% while both currencies were up at best 0.2% and the USD down 0.2%.
Below are two charts of both currencies versus the ES since October 4, the Dexia bounce. Notice the divergence today versus throughout October. Whether you are long or short biased it’s hard to ignore that ES is rich relative to many assets that until recently correlated very well.
European session has been rather strong accompanied by weak volumes. The Stoxx 50 is actually trading at the same level as yesterday, this same time. Much ado about nothing, but let’s see what the US investors start doing when they come in. Some intraday levels below.
MF Global sold about $1.5bn of its European sovereign bonds at a loss just before filing for bankruptcy, the WSJ says, citing a person familiar with the matter. The extent of the losses on the sales, which totalled more than a fifth of its European exposure, http://ftalphaville.ft.com/thecut/2011/11/10/739621/mf-global-sold-european-debt-at-a-loss-before-bankruptcy/
Greece’s political crisis deepened on Wednesday after a deal to give the premiership to the speaker of parliament fell through at the last moment, reports the FT. Philippos Petsalnikos, speaker of parliament and a former justice minister, http://ftalphaville.ft.com/thecut/2011/11/10/739451/greek-pm-deal-falls-through/
Inflation in China fell sharply in October to 5.5 per cent year-on-year, the lowest in five months, clearing the path for what is expected to be a cautious policy easing to prop up growth, reports the FT.http://ftalphaville.ft.com/thecut/2011/11/09/739181/chinese-inflation-falls-sharply-in-october/
Quick Market Update as Merkel suggests of bringing home the D Mark, at least according to a preview of Handelsblatt, via Bloomberg. If this is true or not, we will see tomorrow. On the other hand, we can’t really blame the Germans, or would you like to have the company of Greece, Italy etc? Back to basics time, every man for himself. Bloomberg reports;
RMBS patents ruled invalid German Chancellor Angela Merkel’s Christian Democratic Union party wants to make it possible for European Union members to exit the euro area, Handelsblatt reported in a preview of an article to be published tomorrow, citing unnamed participants in the discussion.
Market is breaking through important levels trading into the last 30 minutes. This is starting to feel rather Flashy…Some intraday levels below. For longer term charts click here.
Majority of markets got absolutely smoked today. Volumes are thin, and all trading dominated by HFT Algos creating pockets of air, irrespective of direction. There is an increasing amount of frustrated fund managers unable to execute their orders in an efficient way. Many markets broke through important short term levels. The Italian MIB index got absolutely slaughtered today, with major banks hitting limits during the course of the day. Italian problems go beyond Berlusconi. The mountain of debt needed to roll over is scaring investors, and the yield curve is now inverted. The hunt has just begun, and if you thought today was bad, it will get worse soon. Some important charts below.
Futures all selling off aggressively. Just like we wrote earlier this morning “Investors loading up on ES futures, due to Berlusconi resigning, will face a harsh reality when they realize Berlusconi is not the problem. The fact the Italian spreads and rates have shot up further should make investors very nervous.”.
Well, what has happened since we wrote the above a few hours ago. Futures are off some 20 handles, while the Italian 10 year rate is currently trading at 7,36%. Remember, Ireland was bailed out at 7%. Italy is UNBAILABLE. All pundit, long the market because of Berlusconi, are now regretting those “panic” buys we saw yesterday. Contagion in Europe is unfolding, and Italy is under attack. Next up should be Spain and France. Below are intraday futures levels, and for the “position ” traders, our longer term view is accessible here.
Another Berlusconi news session. Volume is rather poor, and the only risk takers around seem to be the HFT News Algos. It is almost a sad thing to see how illiquid markets have become from time to time. Indices move up and down one percent on news of Bunga Bunga resigning or not. As per usual, the “secret” buyer that still loads up on futures every morning is around, and supports the market. After the last days move up, we are slowly approaching that magic 200 day moving average. Let’s see if Mr Biggs becomes uber bullish again? Important chart levels below.
Markets are still rather boring. Silvio news out that he does not have majority (but has a lot of Euros) and that some opposition leaders are asking for his resignation. We doubt he really cares about that. Weidman has also suddenly realized that money printing leads to hyperinflation. So, no real news as futures start moving for the first time today.
Don’t be surprised if we get increased margins on Italian Bonds….