Both the SPX and the Stoxx 50 have been rather “boring” for the past sessions. Yes we have had a couple of big up and down moves, but the indices are trading at same levels as the 1st of November. Charts are getting compressed and dynamics are building up within the “trapped” formation. Expect some more dull trading, until we start breaching one of the trend levels. With markets once again dominated by specific politicians and whether they will keep their jobs or hand over the resignation, many will be tempted to trade the short term moves. This will make both the bulls and the bears tired, and we will get that big break out . Stay tuned.
Equity markets are facing reality in this morning session. With the Italian 10 year rate at 6.66%, the clock is ticking. As we have pointed out over the weeks, Ireland got bailed out at 7%. Italian rates should be reaching that level very shortly. The only factor keeping the rates at sub 7% is the notorious buying by the ECB. With the Greek mess “out of fashion”, Italy and (don’t forget) Spain should be the countries to focus on. Below some quick chart updates.
Further charts below.
Guest Post by Macro Story. The equity markets are getting no credit, literally and figuratively. For months now we have discussed the warning signs being flashed by credit and although unheeded by equity they continue to this day.
Perhaps it is because credit markets are perceived as complicated black boxes not worth the time to analyze. The reality is they are not that complicated. Most importantly though without credit you have no economic growth and without growth you have no expanding corporate profits.
Central banks can do all they want to control short term rates but without the participation of credit markets their efforts are futile at promoting economic expansion. So on that note below is an update to some key credit metrics and what they are telling us.
Non Financial Commercial Paper
Used for short term financing needs like inventory and accounts receivable rates continue to move lower. There is simply no demand for commercial paper it appears.
Another set of charts below. After the extreme short squeeze we saw some days ago, markets have reversed, but still “hanging” in there. Major indices are trading within the negative trends, but still making both bulls and bears nervous. The last chart shows the Italian MIB indexe, the “leader” going forward.
Dax and MIB charts below.
Russia has reached agreement with Georgia on terms for entering the WTO, clearing the final hurdle in a deal that could see it join the body by December after 18 years of talks, the FT reports. Maxim Medvedkov, http://ftalphaville.ft.com/thecut/2011/11/03/723731/russia-clears-final-hurdle-to-joining-wto/
It’s “too soon” for China to discuss further bond purchases from Europe’s revamped rescue fund, Vice Finance Minister Zhu Guangyao said on the eve of the G20 summit in Cannes, reports Bloomberg.http://ftalphaville.ft.com/thecut/2011/11/03/723681/chinese-enthusiasm-on-efsf-cools/
Trading in iron ore derivatives almost doubled last month to hit a new record high as a slide in prices triggered a wave of interest in the developing market, says the FT. The volume of iron ore swaps cleared by Singapore’s SGX exchange, http://ftalphaville.ft.com/thecut/2011/11/03/723691/iron-ore-derivatives-trading-hits-record-high/
Nothing new from the Fed today. Time to use this dead cat bounce wisely….
From the Fed. Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.