Belgium

"With EUR now at 1.2773 versus 1.2816 just before the announcement there is probably more downside till the kneejerk reaction is out of the way. But on the whole it seems likely that this more reflects an already existing reality than new information for the market so the downside should be relatively limited, and nothing that could not be cured by an aggressive Fed indication on balance sheet expansion."

While the prior week was marked by some kind of awakening, this week was more about finding a direction. Eventually mostly downwards, but always in jumps, marked by tentative rebounds. Europe mostly lost, so unused not to be the focal point anymore, waiting for US input. If it wasn’t for the Fiscal Cliff, and in absence of further news out of the Periphery, we seem to have

"No Direction" (Bunds 1,32% -2; Spain 5,86% +5; Stoxx 2429% -2,1%; EUR 1,27 -10)

As if we needed more proof that the course implemented by the eurocracy becomes increasingly untenable politically, millions decided to strike in several European countries this week. The demonstrations have, as they are wont to do these days, turned violent in a number places. The protests were most intense in Spain, where unemployment is at over 25% and desperation over the collapse of the bubble economy is growing by the day. This is what happens when after decades of socialism, the money to pay for the freebies finally runs out. What the protesters don't seem to get: the status quo ante cannot be recreated by decree. There is no magic wand for anyone to wave. The protesters have every right to be enraged, but they are raging against something that cannot be changed at the flick of a switch – the wealth is gone.

"Way Down" (Bunds 1,34% unch; Spain 5,92% +9; Stoxx 2475% -0,8%; EUR 1,274 +20)

Well, after the Great Disconnect last week, next to the Great Pumpkin, and Sandy, we had Election week and suddenly the great Wake-Up Call. Fiscal Cliff was suddenly all the rage and ramped up equities (disconnect) were beaten flat by bonds.

"Wake Up" (Bunds 1,34% -11; Spain 5,81% +17; Stoxx 2481 -2,4%; EUR 1,271 -130)

Europe had wanted a rebound, tried to hold on, panicked, sold off, triggered stops – and recovered as the US, although not rebounding fast and furious, at least held the line. EGB running a little out of steam, although August levels were traded again in Bunds. Periphery eventually tracking Risk, but with no own dynamic. Need to see how things close tonight. No More.
"No More" (Bunds 1,34% -2; Spain 5,81% -3; Stoxx 2481% +0,1%; EUR 1,271)

• Greek Aid Payment Call Won’t Be Made Next Week, EU Official (Bloomberg)
• Eurozone faces brinkmanship on Greece (FT)
• Pressure Rises on Fiscal Crisis (WSJ)
• The JC Penney massacre continues (BBG) - In other news, any minute now Bill Ackman will get that 15x return...
• SEC left computers vulnerable to cyber attacks (Reuters) cue "back door Trojan" jokes
• Former Goldman trader accused of fraud (FT)
• Elizabeth Warren's Inadvertent Best Friends: Wall Street and Republicans (BusinessWeek)
• Zurbruegg Says Managing SNB Currency Reserves Is Major Challenge (BBG)
• Obama ally leads push on fiscal cliff (FT)
• Britain threatens to block banking union (FT)
• PBOC’s Zhou Says China’s Economy Improving as Data Due (Bloomberg)
• China slaps duties on steel tube imports (FT)
• Obama to Make Statement on Economic Growth, Cutting Deficit (Bloomberg)

Hmmm… Initial rebound after yesterday’s bashing was rather modest, settling on a bit better and awaiting US input. Spain overdid its auction, which looked just good in the sense of being able to say it sold a new bond for size – to its dealers. ECB, happy to have provided the idea of OMT to save the world from simple panic, now going pessimistic (in non-panicky way). It’s just soft out there… It’s the economy, Stupid! And it is weak.
"Bop 'Til You Drop " (Bunds 1,36% -2; Spain 5,84% +16; Stoxx 2479% +0,1%; EUR 1,275)

• Obama First Since FDR Re-Elected With 7.9% Joblessness (Bloomberg)
• China Party Meets to Anoint Next Leader (WSJ)
• Hu Sets China Income Target for Xi as Communists Gather (Bloomberg)
• Hu Jintao dashes hope for political reform (FT)
• Spain Sells $6 Billion Debt, Placing Longest Bond Since 2011 (Bloomberg)
• Japanese Politicians Move to Steer Away From Fiscal Cliff (Bloomberg)
• Hu says graft threatens state, party must stay in charge (Reuters)
• Weidmann in Defeat Still Influences ECB Bond-Buying Plan (Bloomberg)
• Spain Said to Consider Palace Sales to Raise Cash (Bloomberg)
• First-term headwinds look set to turn (FT)
• Focus Shifts to 'Fiscal Cliff' (WSJ)
• Obama Victory Paves Way to Continue Fed Policies (Hilsenrath)
• Swiss, Greeks Begin Talks on Tax Deal (WSJ)

"Pinball Wizard" (Bunds 1,38% -5; Spain 5,68% +4; Stoxx 2486 -1,8%; EUR 1,276)