Archive - Jun 22, 2010

It was only a matter of time before "inclement weather" tested the BP falling knifers. Provisionally titled Tropical Storm Alex (currently disturbance 93L), the first tropical storm of the Atlantic hurricane season, is now expected to enter the GoM area as soon as next week, causing unpredictable and possibly irreparable harm to BP's clean up efforts. And this is just the beginning: as Bloomberg reminds: "Forecasters are predicting this year’s Atlantic hurricane season, which runs from June 1 to Nov. 30, may be among the most active on record...Three storms, two of them hurricane-level, may pass through the oil spill area, while three more may come close enough to affect cleanup operations and other rig activity, AccuWeather Inc. chief hurricane forecaster Joe Bastardi said." We are confident all those who have written exhaustive multi-page investment theses vouching their certainty that BP is at least a doublebagger have factored in such completely unpredictable factors as 100+ mph winds and currents that bring BP's tarballs all the way up to Virginia along the eastern seaboard.

• Iran launches aid ship to Gaza on Sunday (AP)
• Furious Obama summons McChrystal to explain comments  (Politico, Bloomberg)
• Goodbye Keynes, hello Hoover (Nation)
• Cancelled mortgage modifications surge 55% in May (eCreditDaily)
• UK's Osborne cuts 2010, 2011 forecasts (Reuters)
• Wall Street's invisible gorilla is killing America's soul (MarketWatch)
• Misguided housing subsidies promote unfairness, bailouts (USA Today)
• Quanto swaps show 9% euro drop on Greek default, Citigroup says (Bloomberg)

Gold washed out after a promising start on Monday, with the August future reaching an all-time high of $1266.5 per 100 troy ounces before an epic collapse. Gold fell about $35 to a low of $1231.6 before recovering slightly and closing at $1240.7, almost a 2 percent loss for the day. The selling has resumed in early morning and overnight trading as anxious investors take profits and question whether gold is overbought. With all the news, rumors and factors that came out on the bullish side yesterday and last weekend it should be obvious to everyone why the market was lower; The Chinese have a time machine and knew what they were going to say before they did it. Then having positioned themselves before the event, they sold into the rally.

As reported yesterday, the ECB today completed a weekly liquidity withdrawing operation consisting of Fixed Term Deposits, to "remove" the excess cash obtained from €51 billion worth of sovereign bond purchases. This was the sixth consecutive such auction, and the sixth consecutive decline in the bid to cover. 67 bidders participated and submitted total bids for €71.559 billion, to take down €51 billion, or a 1.40 Bid To Cover, which was another sequential decline compared to last week's €47 billion in take down after €71.078 in total bids, or 1.50 bid to cover. The weighted average allotment rate was 0.31%, with a maximum rate of 1% and a marginal rate of 0.4%. With another auction next week, and then many more, all dependent on the amount of debt that Spain et al place "successfully", we expect the Bid To Cover to decline consistently, until we hit a 1 BTC and the ECB realizes its monetization program is a failure.

• Asian, European stocks fell for the first time in 9 days; Euro weakened against Yen.
• German business confidence rises on increased export expectations.
• US home sales likely to weaken with the end of the tax credits: Bloomberg
• Japan targets balanced budget by 2020 to contain debt.
• Oil declines as optimism fades over boost to global economy from Yuan plan.
• Russia cut natural gas supplies to Belarus after Minsk failed to pay off debts.

We issued a bearish recommendation yesterday given the daily reversals observed. The S&P future here is sitting very close to the neckline of a short-term H&S pattern (1,103.5). This is relevant because few people spot those on a 10-minute chart so chances of a headfake are actually far lesser. Also the neckline is situated right around the 200-dma which has been a relatively important pivot and the top of yesterday's candle rejected the 100-dma which is about to post a bearish cross with the 50-dma. Overall there is therefore a decent lid on the market. We would use 1,118 as a stop for shorts, and add on to shorts if 1,103/1,100 is broken. - Nic Lenoir

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/06/10