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)
Europe mostly boring. Several inconclusive downside tests in European equities. Static bonds, unwilling to tighten further. More US equity weakness, more downside. Way is shown by US equity dump. Periphery? What Periphery? What problem? Credit, EGBs, most commodities just watching. Dismal close.
"That's the Way (I Like It)" (Bunds 1,32% -2; Spain 5,86% -3; Stoxx 2429 -1,2%; EUR 1,27 -90)
Thomson Reuters GFMS has published research that says they project silver prices to rise 38% in 2013 from current levels, as a sluggish global economy increases safe haven demand. The bullish silver GFMS forecast was published on the Silver Institute website yesterday and is unusual as the GFMS have been quiet bearish on silver in recent years despite rising prices. Philip Klapwijk of GFMS said that “a rebound in investment demand stemming from continuing loose monetary policies is expected to drive silver prices towards and possibly over $50 during 2013.” Spot silver has risen over 17% this year overtaking gold’s 10% gain, and paving the way for its third consecutive rise in four years. "Strong investment demand, higher gold prices on the back of monetary easing, rising inflation expectations and the persistence of ultra-low interest rates," are among the factors that will lure buyers to the safety of silver,” said Philip Klapwijk of GFMS. "We are thinking prices will trend higher next year. I'm not convinced that we are going to $50. I think we will definitely see $40 to $45 prices."
There was precious little in terms of actionable news in the overnight session, which means that, like a broken record, Europe falls back to contemplating its two main question marks: Greece and Spain, with the former once again making noises about the "inevitability" of receiving the Troika's long delayed €31.5 billion rescue tranche. The chief noise emitter was Italian Finance Minister Vittorio Grilli who said he was "confident that euro-region finance chiefs will reach an agreement on aiding Greece when they meet next week." He was joined by Luxembourg Finance Minister Frieden who also "saw" a Greek solution on November 20. Naturally, what the two thing is irrelevant: when it comes to funding cash flows, only Germany matters, everything else is noise, and so far Schauble has made it clear Germany has to vote on the final Troika report so Europe continues to be in stasis when it comes to its main talking point. In fundamental European news, there was once again nothing positive to report as Euro-area exports fell in September as the region’s economy slipped into a recession for the second time in four years. Exports declined a 1.1% from August, when they gained 3.3%. Imports dropped 2.7%. The trade surplus widened to 11.3 billion euros from a revised 8.9 billion euros in the previous month. Global trade, at whose nexus Europe has always been at the apex, continues to shrink rapidly. Elsewhere, geopolitical developments between Israel and Gaza have been muted with little to report, although this will hardly remain as is. Providing some news amusement is Japan, where the LDP opposition leader Shinzo Abe continues to threaten that he will make the BOJ a formal branch of the government and will impose 2% inflation targeting, which in turn explain the ongoing move in the USDJPY higher. This too will fade when laughter takes the place of stunned silence.
The US crashing close yesterday was cushioned in Europe by better than expected (backward-looking) GDP figures in Germany and France. EZ in recession nevertheless. Limited fall-out, albeit lower (equity) levels tested. Periphery okay’ish, then good on better Italian GDP. Spain tag along with limited own dynamics, mainly trailing Risk assessment. EGBs difficult to move lower from here. Watching the US. Someone. Please. Show the way.
"Are You Gonna Go My Way? " (Bunds 1,34% +0; Spain 5,89% -3; Stoxx 2459% -0,6%; EUR 1,279 +50)
See-sawing – and still looking for direction. Open weaker, in line with the US close. Some exuberance ahead of the Italian auction, despite negative figures. Awakening that nothing was justifying this. Re-correction while awaiting the US take of things. With the US opening flattish plus, Europe had a light lift and started tagging along, tick for tick, stuck in a loop. Some more European gloomy news to end the day. Way Down. For the moment mostly an equity move. And cut.
"Way Down" (Bunds 1,34% unch; Spain 5,92% +9; Stoxx 2475% -0,8%; EUR 1,274 +20)
Leveraging EUR strength (USD weakness) in the US-open-to-EU-close to ramp stocks to highs was rapidly followed by a collapse back to reality in US equities from EU-close-to-US-close. Just remarkable. Treasuries and FX markets were much less exuberant over the entire lack of news that drive the S&P up over 20 points from open to EU close and sure enough - helped by the obvious desperation of a 'failed' Yellen-threat - equities retraced it all; ending the day back near the recent lows. Stocks once again tested the bottom of Draghi's Dream and rejected it; commodities were mixed and very dispersed with Copper and Silver swinging wildly (up on the day) even as the USD ended the day practically unchanged. Tech and financials are the losers still on the week as AAPL clawed its way back to marginally green by the close with the magical $545 level now critical four days in a row.
As Greek discussions overnight revealed a spat between Europe and the IMF, and given yet another closing slump in the US, Risk started on a weak footing with Risk nearing Friday lows, before being ramped up by rumours, showered again and finally supported by the US opening in negative, albeit tame manner, before moving into positive territory and taking everything along. Given the noon despair, the afternoon relief seems…exuberant. Especially as the US still lead the way.
"That's The Way" (Bunds 1,34% unch; Spain 5,83% -5; Stoxx 2494% +0,8%; EUR 1,272 +1)
Sigh... Volume is around 50% of average. USD ends the day unchanged; Treasury futures imply an unchanged cash market; Equity indices close practically unchanged but there are some odd-ones-out on the day. Utilities were sold much more heavily that the rest of the S&P sectors (with Tech the only other red sector). Copper managed an outlier gain while oil/gold/silver all dropped. Individual stocks suffered from some exchange drama but all eyes were on JCP (which potentially lost Mr. Ackman $106mm today and ended with a $17 handle (-13%) - its lowest since March 2009; AAPL slid from 'exciting' opening highs to close -0.75% finding every ramp to VWAP was sold into. VIX was the story of the day as much was made of the collapse in front-end risk premia - this (as we explained earlier) was only half the picture as the longer-dated VIX rose relatively as the fiscal-cliff event risk is gradually priced in at year-end. Stocks were considerably more volatile intraday than broad risk-assets (thanks to Treasuries closure) especially after Europe's close, but they ended the day pretty much recoupled.
Rather quiet. Verdict still out, whether we’ll get a real rebound or whether the last days were already the dead cat bounce, before heading lower. Periphery on the soft side, but with restricted own dynamics and trailing general Risk sentiment. Waiting. For the US to show the way. Or something to happen.
"Show Me The Way" (Bunds 1,34% unch; Spain 5,88% +7; Stoxx 2473% -0,3%; EUR 1,271 unch)
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)
It's been a mere seven weeks since the CNBC'ers announced to the world that every widow, orphan, and pet-monkey should buy the market with both hands and feet as Bernanke just opened the gates. The exact phrase on the evening of QEternity was:
"Buy everything that's not nailed down... as bearish as I want to be, you cannot fight the Fed. You buy everything. Buy copper, which i did today, FCX which i mentioned last night. Anything else? Emerging markets! everything! Just buy it. Buy it all. You never have to short again. Buy it. I had a guy call me today trying to sell me research on the short side, and I said I'm sorry, I think you're going to go out of business. You shouldn't short anymore."
Things haven't quite gone as planned...
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)
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)
As the Romney bounce was removed last night, German (and European) growth is lowered, AAPL's dominance is questioned, and the 'fiscal cliff' (oh yeah that) comes into focus, is it any wonder equity markets dumped today. Depending on which index you looked at, equities fell the most in a year (or a month) with the Dow and Nasdaq closing below their 200DMA. Gold and Bonds outperformed and S&P futures plunged further after-hours closing below its 100DMA for the first time in over 3 months (as VIX closed at 19% - its highest in 3 months)