- Market talk that China may contribute towards the EFSF. Meanwhile, Japanese PM Noda said Japan will consider continued buying of EFSF bonds
- According to an EFSF spokesman, the EFSF is putting off the sale of its 10-year securities
- Weakness in the USD-Index boosted EUR/USD, GBP/USD and commodity-linked currencies
- According to the German foreign minister, the Greek rescue plan cannot be renegotiated
- Markets look ahead to the FOMC rate decision followed by Fed’s Bernanke press-conference
Greek Prime Minister George Papandreou said a referendum on Europe’s rescue package will confirm the nation’s membership of the euro as he stuck to plans to hold the vote amid signs his government may collapse.
Prime Minister George Papandreou's shock decision to call a referendum on Greece's bailout drew veiled threats from Germany on Tuesday and hammered markets edgy over the euro zone crisis.
- Concerns surrounding the Greek debt situation resurfaced after the Greek PM called for a referendum on the new EU aid package, and news that the Greek government is planning a vote of confidence this Friday
- Lacklustre manufacturing PMI data from China dented appetite for risk
- GBP came under pressure following weaker than expected manufacturing PMI data from the UK, however did recover some strength after higher than expected UK’s third quarter advanced GDP reading
- The RBA cut its benchmark interest rate overnight by 25 basis points as expected
A strong shift in sentiment against the Euro was the theme of yesterdays action, this has resulted in a big shift in retail positioning in the EURGBP today which went from over 60% of retail traders being short (and correct) to now over 60% being long (and wrong as they are most of the time). In keeping with our contrarian view we maintain a short bias on EURGBP.
While household-sentiment measures are at levels typically observed during a recession, an increase in spending during the third quarter boosted growth to the highest level of the year, Commerce Department figures showed Oct. 27. The schism partly reflects consumer ire with the government’s failure to reduce 9.1 percent unemployment or stem rising deficits, said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management.
Despite measures to tackle the Eurozone debt crisis from last week's EU leaders' summit, the implementation details remained unclear and there remained uncertainty about the Chinese contribution in solving the crisis, which dented the appetite for risk. Furthermore, the OECD and UBS cut their respective growth forecast for the Euroarea, which also weighed on the sentiment, and led European equities to trade lower, with underperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices. Weakness in equities provided support to Bunds, whereas the Eurozone 10-year government bond yield spreads widened across the board, with particular widening seen in the Italian/German spread on the back of debt and political concerns surrounding Italy. In the forex market, Japan intervened in the FX market overnight, which resulted in the weakening of JPY across the board. In other news, strength in the USD-Index weighed on EUR/USD, GBP/USD and commodity-linked currencies. Moving into the North American open, markets look ahead to economic data from the US in the form of Chicago PMI, and NAPM-Milwaukee, together with the Canadian GDP figures.
We ended last week with 88%+ of USDJPY traders long and wrong for many months now. Today Japan sold the yen for the second time in less than three months after it hit another all time high against the dollar last week. As usual...retail traders are quickly moving position and we are seeing a strong drop in overall long positions to 70.83%. We expect this trend to continue but its important to note that past interventions haven't done a whole lot to stem the tide.
"Unless the FCBs step up to the plate much more than they have in the past couple of weeks, either the Treasury market will collapse, or the stock market rally will fizzle, or both. We’re not there yet." Lee Adler
- Chinese vice finance minister said details on the expansion of the European bailout fund is still unclear, adding that purchases of EFSF bonds are not on the G20 agenda. Also, EFSF’s Regling said he does not expect to reach a conclusive deal with Chinese leaders during his visit to Beijing
- The German Constitutional Court halted the use of a special parliamentary committee that was recently created to decide on changes to the Eurozone’s bailout fund in emergency situations
- Meanwhile, a German senior coalition lawmaker said the Constitutional Court's decision means the EFSF secondary market bond purchases will be de facto impossible until a verdict, as Bundestag plenary cannot meet confidentially
- Lacklustre BTAN auctions from Italy dented appetite for risk
USDJPY continues to push the high 80s in terms of percentage of traders long. AUDUSD with 59.55% of retail traders short has pushed into the long bias zone.
- European leaders agreed, in principle, to boost the firepower of the EFSF to approximately EUR 1trl using a combination of a special purpose investment vehicle and a debt-insurance scheme. The leaders also struck a deal with private banks and insurers for them to accept a 50% loss on their Greek government bond holdings
- According to EU sources, the EU is to present Eurobond ideas on November 23rd
- According to a German government official, direct or indirect financing via the ECB is ruled out, adding that haircut excluded Greek bonds held by the ECB
- BoE's Fisher said that the BoE will revisit QE once the current purchase is complete, adding that there is a significant chance of a double dip recession in the UK
Finally. With news commentary that involved talk of deadlocks and disagreement on some occasions yesterday. The leaders of the EU have reached an agreement whereby private bond holders of Greek debt will commit to a 50% haircut on those debts, important to note that this is only the case for private sector debt, not total Greek debt.