Archive - Dec 2, 2010

For a demonstration of the unsustainable course that European sovereign funding is on, look no further than Spain, where earlier the government auctioned off €2.468 billion in three year notes for a whopping 3.717%. The bid to cover was 2.27 compared to 2.16 in October, and it was reported that foreign buyers bid above 60% of the auction (which means the ECB funded domestic banks bought about 40%). However, the same issued priced at 2.527% at the last sale on Oct. 7, a 119 bps difference. Still it wasn't all bad, considering the bond had traded at almost 4% in recent days. As Reuters reports: "Analysts and bond market players had predicted a leap of as much as 2 percentage points in yields, but Madrid's situation has been helped by mounting expectations the European Central Bank will step up extraordinary measures to contain the crisis." The problem for Spain is that it has minimized the amount of debt it is issuing during turbulent times: "The Treasury had cut the amount of bonds on offer in order to trim financing costs as it faces down market doubts on whether it can bring down its deficit due to sluggish economic growth and persistent concerns it might need to bailout its debt-laden banks." And the problem for the ECB is that it most likely, as many analysts are predicting, will not announce anything of substance, as otherwise the ECB will have to monetize up to €1.5 trillion in total debt and interest through the end of 2011. The result for the EUR will inevitably be disastrous in either case, and if in 25 minutes JCT indeed announces nothing, look for all those who bid up the bond auction earlier to be tearing out their hair as the 3 Year promptly passes 4%.

The rate announcement came in at 1% as expected. The key part on whether the ECB will monetize €1.5 trillion of debt and interest over the next 13 months will come at 8:30am when the full conference is held.

After an early morning reading on on-line advertising, we have claims, chain-store sales, pending home sales, and the Fed’s balance sheet. Away from the US, 7:45am Eastern sees the ECB rate decision, and at 8:30am is the important conference during which JCT is expected to announce more QE by the ECB. As Brian Yelvington from Knight securities observes, that this news can rise the EUR makes absolutely no sense: "The EUR has risen on this speculation, which seems to be a quandary as if the ECB does purchase, it is participating in QE which is a currency negative and if the ECB does not purchase as expected, it is a clear EMU and currency negative. Further, with over €1.5 trillion in principal and interest due in the next thirteen months alone, any solution would have to be quite sizable to stem the tides. The true solution will be systematic in nature and involve a central treasury-like facility. Till then, the rest is loud political noise."

Busy day in the markets today as Eurozone concerns took a breather and a backseat to a barrage of positive dataflow, starting with a big beat in Chinese November manufacturing PMI (55.2 vs 54.8 expected vs 54.7 prior) that helped boost markets. Significant support levels in the euro, which I pointed out in last night’s piece, and moving average ceiling in the US Dollar Index, set up a market ripe for a rally and the data catalysts followed through. A great beat in US November ADP employment (+93k vs +70k expected vs +82k prior) and a 56.6 print for US ISM PMI, higher than the 55.5 consensus estimates, helped send markets rallying further. Upward revisions by GS to its macro forecasts for both US & global growth added fuel to the fire.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 02/12/10

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Below the thunders of the macro deep;--

Far, far beneath the abysmal news,--

This ancient, clueless, PhD freak--

The Benron sleepeth

RealtyTrac has just reported that even though the volume of foreclosed homes plunged by 25% from Q2 to Q3 and 31% from Q2 of 2009, the discount on foreclosed homes has hit a five year high, as interest in even ultra bargain properties has collapsed following the expiration of the homebuyer tax credit, and confirming yesterday's bad Case Shiller (remember that one?) number. Per RealtyTrac: "foreclosure homes accounted for 25 percent of all U.S. residential sales in the third quarter of 2010 and that the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process — up from a 26 percent discount in the previous quarter and a 29 percent discount in the third quarter of 2009." Yet despite the major price drop, buying interest has evaporated as nobody there is no longer any purchasing power left in the lower and middle sections of the housing market: "a total of 188,748 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the third quarter, a decrease of 25 percent from the previous quarter and a decrease of nearly 31 percent from the third quarter of 2009. The average sales price of properties in some stage of foreclosure was $169,523, down 2.46 percent from the previous quarter and down 0.44 percent from the third quarter of 2009." And while the average price of non-foreclosed homes posted a slight uptick in Q3, the volume drop was even worse: "The average sales price of properties not in foreclosure was $249,721, up 6.42 percent from the previous quarter and up 4.36 percent from the third quarter of 2009. Sales volume of non-foreclosure properties decreased 29 percent from the previous quarter and nearly 31 percent from the third quarter of 2009."