The Printer Gets Another Cartridge

Submitted by Nic Lenoir

Chairman Bernanke was voted back in today. Interestingly the markets reacted very little to it, and if anything equities showed renewed weakness after the official confirmation whereas they had bounced from their lows earlier in the session. I think it was as much due to late stops into the close than anything but after hours will tell us the true story.

The main story of the day anyways was further sell-off of Greek bonds. France and Germany denied rumors of an ECB bail-out, but the IMF stated they would act if needed. We think this puts Europe in a bit of a pickle, because this is the first hard test on the union, and letting the IMF take the helm and step in to support one of their members would be somewhat humiliating. Maybe ripple effects on Spain, Portugal, or Ireland, will also make France's and Germany's position more difficult to hold. The odds in our mind are towards a quick resolution. Bunds have been bought against the PIGS sovereign bonds being sold, and we think a resolution will bring about swift selling of German Treasuries, especially as US Treasuries are barely rallying despite a strong 7Y auction today.

Risk was being unwound generally, but it is interesting to note that AUD and EUR are only marginally lower against the USD, and Gold held it's channel today. Equities despite being weak today, were only 0.5% lower at their worst than the lows of the 26, and we continue seeing bullish divergence of momentum indicators. Unfortunately we did not see our 1,105 sell level this morning which would have been a brilliant opportunity considering what happened next. If we can hold the lows here we should go back towards 1,105/1,108 at least.

Copper however has confirmed its break lower and was sold aggressively today. We feel there ould be more to come there and see only 266 as a major support on the way down. The Chilean peso keeps trading very weak as a result of Copper weakness and overall US strength. I wonder how mining companies feel about paying record bonuses to their miners recently?

All eyes are on Greece tomorrow, and US GDP but it would have to come far off line one way or the other to overshadow European drama at this point.

Good luck trading,

Nic