Eurozone

Equity Futures Storm Out Of The Gate, Trade At Session Highs

Equity futures stormed out of the gate on initial relief that a Syria attack may be avoided, which sent oil and the PM complex flash crashing lower. However, overnight, sentiment shifted that the Syrian escalation is at best delayed and as a result Brent regained all losses, with the precious metals also largely unchanged from Friday's close. Futures on the other hand, were perfectly happy to rise on the transitory Syrian risk moderation reduction, and then continue rising when Syria returned to the forefront, this time prodded higher by PMI exuberance out of China and Europe. How credible such manufacturing data remains to be seen. A surging USDJPY was also rather helpful, with the pair breaching 99.00 stops to the upside shortly after the European PMI data printed. And with the cash US market closed, and electronic equity trade halted at 10:30 Central, it is unlikely that concerns about all those "other" things that will define September, will seep in and it is likely the HFTs will push equities to session highs before reopening for the Tuesday trading.

European August PMI Hits 26 Month High Despite 19th Straight Month Of Accelerating Manufacturing Job Losses

After China's weekend PMI release, Monday saw the full data dump of final Manufacturing PMIs from Europe, which on the surface was as good as it could get: with a composite PMI print of 51.4, compared to expectations and a flash reading of 51.3, this was the highest number in 26 months. Summarizing the European final August PMI data: manufacturers feel broadly better about themselves: in fact the best in 26 months, with new orders largely fueled by export demand. Yet exports to where one wonders, considering net trade surplus data has been stronger than expected for virtually all nations in the past month: after all in a zero trade sum world someone has to be substantially increasing their imports? But more importantly, actual jobs - the real growth dynamo for the European economy - continue to deteriorate, accelerating their downward pace having declined for 19 months in a row.

GoldCore's picture

This week will see the end of August trading and September is, along with November, one of the strongest months to own gold. This is seen in the charts showing gold’s monthly performance over different time frames - 1975 to 2011, 2000 to 2011 and our Bloomberg Gold Seasonality table  from 2003 to 2013 (10 years is the maximum that can be used).

Thackray's 2011 Investor's Guide notes that the optimal period to own gold bullion is from July 12 to October 9. During the past 25 periods, gold bullion has outperformed the S&P 500 Index by 4.7%.

Uncertain Market Digests Splintering Of Syria Pro-War Alliance

Overnight, the market continued to digest news out of the UK that the formerly solid pro-war alliance has splintered following a historic vote by the House of Commons, leaving Obama to "go it alone." The result was a rather sizable slamdown in both crude and gold, accelerating as Europe opened for trading, and pushing gold back under $1400. This happened even as data out of Europe showed that European unemployment remained at a record high 12.1%, while inflation missed expectations and printed at 1.3%, or below 2% for the seventh month. Earlier in the session, headline data out of Japan showed that inflation had risen at the fastest pace since 2008. However, before the deflation monster is proclaimed dead, the core-core figure (excluding foods and energy) of the Tokyo CPI was down 0.4% yoy, unchanged since June for three months, suggesting that prices are still largely driven by energy-related costs. In other words cost-push inflation is rampant, which is the worst possible scenario and means the BOJ's QE is going to all the wrong place.

Market Continues Headless Chicken Dance As Uncertainty Soars

The key overnight events were already discussed previously, but here they are again: the wholesale selloff in Asia (which subsequently shifted to Europe), the accelerating outflows from India (moment ago the SEBI website announced a net INR13.7 billion selling in Indian stocks yesterday and the near record collapse in the Indian Rupee to new record lows, and the ongoing uncertainty over Syria and what it will do to crude prices (if SocGen is right, nothing good). In brief: a market conditioned and habituated to a world in which Bernanke promises "to make everything ok" suddenly finds itself in the throes of uncertainty and following 4 years of dumb trend-following,  has no idea what to do.

The IMF's "Containment Strategy" For Europe: Fingers Crossed

"The latest numbers that we have received, in particular from Germany, are encouraging, whether it's manufacturing, whether it's service activity, whether it's exports. That is heading in the right direction, but it needs to be sustained over time. And I'm crossing fingers for the eurozone..."

What's Driving Treasury Yields?

The 10Y Treasury yield has jumped nearly 130bp from its low point in early May. Given the tight ranges and low volatility of yields during the most of QE era, this kind of move in just over 3 months seemed stunning to some investors. Consequently, the question that has come up often recently is: what has been driving Treasury yields? As UBS' Boris Rjavinski notes, several years ago a rate strategist would give you a straightforward and predictable answer: inflationary expectations, economic growth projections, and current and future monetary policy. But now, as Rjavinksi notes, central banks and politics in the driver seat. Volatility will remain elevated as we await key messages from the Fed in September, and U.S. political calendar will start to heat up as we approach the “drop-dead” dates to fund the government and extent the dent ceiling.

GoldCore's picture

One of the most published academics on gold in the world is Dr Brian Lucey of Trinity College Dublin (TCD) and he and another academic who has frequently covered the gold market, Dr Constantin Gurdgiev have just this week had an excellent research paper on gold published.

They have researched the gold market, along with Dr Cetin Ciner of the University of North Carolina and their paper,  ‘Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates’ finds that gold is a hedge against US dollar and British pound risk due to “its monetary asset role.”

Why Asian Markets Are Collapsing In 3 Simple Charts

A steady rise in leverage in recent years means Corporate Asia now has the most leveraged balance sheets globally. As Morgan Stanley's Viktor Hjort notes, with Fed liquidity anticipated to slow, now the cycle turns more adverse. Asian corporate balance sheets face a combination of slower growth and higher funding costs. Slower economic growth is putting downward pressure on earnings growth and rising real rates is putting upward pressures on funding costs turning bad macro into even tougher micro. Asian banks are tightening lending standards in their procyclical way but Asian credit markets are facing a fundamental environment that for many corporate borrowers will feel like a recession.

Jackson Hole Begins As 10 Year Slouches Toward 3.00%

Following the market's shocking realization that the taper is coming prompting a kneejerk to the kneejerk reaction after the FOMC minutes, and yet another painful session in Asia, stocks were desperate for some good news from somewhere, which they got thanks to a Goldilocks PMI from China printing by the smallest possible expansionary quantum, or 50.1, and well above expectations, as well as a continuation of better than expected European PMI data with the August composite rising from 50.5 to 51.7 vs. Exp. 50.9, based pm a Services PMI rising into expansion to 51.0 from 49.8, (Exp. 50.2), and Manufacturing at 51.3 vs. Exp. 50.8 up from 50.3, the highest since June 2011. It is perhaps stunning just how conflicting this "improving" data is with private sector industrial and manufacturing company metrics, but with the credit creation situation in Europe (read: all that matters) at record lows, and with banks retrenching and needing to delever by trillions, it is only a matter of time before this latest propaganda wave is exposed for what it is. The net effect of the overnight data is to push the USDJPY to nearly 99.00 which thanks to the ubiquitous correlation algos has dragged US equity futures higher, if only briefly (the 10 Year is at 2.91% - under 10bps from redline territory), while slamming the offsetting EURUSD despite the "better" than expected European data.

FOMC Minutes Jitters Push Risk Lower

More of the same downward drift this overnight trading session, with early Asian outflows coupled with a fresh record low in the Indian currency, driven in part by reports the Fukushima leak severity had been raised from Level 1 to Level 3, which however subsequently reversed following a weakening in the JPY and pushed the Nikkei from a steep early drop to a modest green close. China was unchanged even as Fan Jianping, chief economist at the State Information Center, said that a new reasonable range for China’s growth is 7%-9%, Xinhua said and ongoing liquidity additions by the PBOC. In Europe, newsflow was dominated early on by a Suddeutsche report that the third Greek bailout would be likely financed in part by EU budget as the reality that nothing is fixed in Europe slowly returns and fears that the latent and non-existent OMT will eventually have to be used. US futures have seen a modest risk off bias in part driven by concerns what today's key event, the FOMC minutes due out at 2 pm, would reveal (if anything new). Also on deck are Existing home sales at 10:00 am which expect a slight pick up to 5.15 million from a 5.08 million prior print.  Moments ago the latest weekly MBA Mortgage Applications number came out and, to nobody surprise, it posted the last weekly decline, dropping another 4.6% with conventional refis dropping for the 10th consecutive week.

Overnight Safety Bid For 10 Year TSYs Offsets USD Weakness, Keeps Futures Rangebound

Following yet another rout in Asia overnight, which since shifted over to Europe, US equity futures have stabilized as a result of a modest buying/short-covering spree in the 10 Year which after threatening to blow out in the 2.90% range and above, instead fell back to 2.81%. Yet algos appear confused by the seeming USD weakness in the past few hours (EURUSD just briefly rose over 1.34) and instead of ploughing head first into stock futures have only modestly bid them up and are keeping the DJIA futs just above the sacred to the vacuum tube world 15,000 mark. A lower USDJPY (heavily correlated to the ES) did not help, after it was pushed south by more comments out of Japan that a sales tax hike is inevitable which then also means a lower budget deficit, less monetization, less Japanese QE and all the other waterfall effect the US Fed is slogging through. Keep an eye on the 10 Year and on the USD: which signal wins out will determine whether equities rise or fall, and with speculation about what tomorrow's minutes bring rife, it is anybody's bet whether we get the 10th red close out of 12 in the S&P500.

Key Events In The Coming Week

The week ahead will be relatively quiet with few major data releases. The main focus will be on the Flash PMIs in the Eurozone and China as well as the FOMC minutes and Jackson Hole. In the US the relatively new Preliminary PMI has been found useful by our US team in forecasting the ISM. Existing and new home sales are additional data points of interest in the US.  The key focus this week will be on central bank action. Minutes from the FOMC and the RBA will be followed by rate decisions in Thailand and Turkey. Finally, on Thursday starts the annual Jackson Hole conference with lots of Fed speakers, including Yellen next weekend. Chairman Bernanke, whose term ends in January, will not attend.