From Nic Lenoir
S&P futures started the day vertical and did not really look back: the reason? Talks of announcement of further bond purchases by the ECB on Thursday. Now that is excellent news. The only central bank that was somewhat trying not to completely dilute its currency into oblivion in order to bail out its overleveraged government, banks, and anything else worth more than $500mm, is throwing the towel completely. On the back of that one must concede data was slightly better than expected, but headlines attributing the market strength to China's PMI are simply stunning by their candor: 55.3 versus 54.8 the previous month when the survey pointed to 55.4? Talk about a blow out. Typically the margin of error on those surveys is greater than the uptick from last month, and if I were cynical I would say the margin of error on Chinese data releases is close to the number itself. The numbers are made to match the growth target.
I guess the only surprise is that Gold was not stronger. In terms of fundamentals this is just about as supportive of precious metals as could be, and it stopped the rise of the USD! I was surprised by the weakness in FIxed Income as well. Yesterday's price action in the late afternoon was a bit of a warning sign but still, it was quite a move. Let us hope that tomorrow's ECB announcement and Friday's NFP will not disappoint.
In any case, today was the perfect opportunity for GS to come with a revised much more bullish forecast for the economy. The nature of the arguments advanced seemed a bit suspect: basically foreign demand and public demand will more than make up the lack of private demand. That is excellent news but it may somehow miss out on the fact most governments in Europe are going to keep cutting drastically public spending, there are certainly new members in Congress trying make the country lean that way as well, and the brilliant Albert Edwards' chart on Chinese leading indicators is not exactly positive. Unfortunately now growth forecasts are becoming as volatile as the markets: it's the tail wagging the dog. The Fed must be proud in succeeding in having the S&P dictating the economy instead of following it.
Personally I do not think the fundamentals have changed one bit. Certainly the private sector has surprised in November to the upside as people trampled their way to Black Friday bargains, but from there to extrapolate +3.7% growth in 2012 is more than an exageration. Probably more a good opportunity to short squeeze those who sold equities realizing Greece was only the tip of the European iceberg, with the help of $8Bn more in cash provided by the Fed.
With my view being solidly anchored in the camp of slower rather than accelerating growth, I do not expect a reflationary sell-off is sustainable in Fixed Income for now. A solvency crisis could make bonds tank, but growth will not be strong enough to achieve that for quite a bit more time. I like focusing on the ERU2 future. The chart attached shows that as long as we remain above 98.00 there is no reason to panic. If that level is broken surely a much large sell-off is at works, but until then I keep a preference for constructive price action in Germany and US Fixed Income, with I must admit slightly less conviction than Monday morning.
Finally I thought that to share my increasing despair in today's society and the path the world is engaged on, I attached a link with an uncanny story of how Brazil is celebrating their newfound wealth accumulated thanks for the Federal Reserve and at the expense of the American taxpayer by electing a clown in Congress. I used to think that calling our politicians clowns was a figure of speech, but apparently it is no longer the case. At least we can applaud Brazil for having the guts to things so literally.
Good luck trading,
Brazil Clown Ruled Eligible to Take Seat in Congress (Update1)
2010-12-01 18:16:58.819 GMT
By Andre Soliani
Dec. 1 (Bloomberg) -- Brazilian clown Francisco Everardo Oliveira Silva, who goes by the stage name of Tiririca, can read and write enough Portuguese to take his seat in congress, the Sao Paulo electoral court said.
Tiririca, whose 1.35 million votes led all candidates in the Oct. 3 congressional elections, was accused by a prosecutor of forging a document to prove he could read and write.
Brazilian law bans illiterate people from public office.
“A rudimentary reading and writing knowledge is enough,”
the electoral court said in a statement posted on its website today. Tiririca has “a minimal understanding of the content of the text, in spite of his difficulties in writing.”
Tiririca won the lower house seat for the state of Sao Paulo after appearing as a clown in campaign ads and using the punch line “It can’t get any worse.”
He will be among elected deputies who will be confirmed on Dec. 17, the electoral court said, citing the decision by Aloisio Sergio Rezende Silveira. Lawmakers take office Feb. 1.
The public prosecutor can appeal the decision, a press officer at the court, who can’t be identified because of internal policy, said.