Price Action

Stocks in Europe traded lower throughout the session, as market participants reacted to another round of weak data from Asia. In particular, China’s imports fell 2.6% on the year in  August vs. Exp. 3.5%, underpinning the need for policy easing measures from the People's Bank Of China. Some of the weakness in equity space was also attributed to profit taking following last week’s gains. Spanish bonds continued to benefit from the ongoing speculation that the government will seek a full scale bailout. As a result, SP/GE 10y bond yield spread is tighter even though there is an outside chance that the constitutional court vote in Germany will delay this. On the other hand, IT/GE and NE/GE bond yield spreads are wider, reflective the upcoming issuance, as well as elections. EUR/USD and GBP/USD, both seen lower on the back of touted profit taking, as well as pre-positioning into near-term risk events mentioned above. Commodity linked currencies are also weaker, weighed on by the weaker data from China, which also showed that imports of crude oil hit a 22-month low. In terms of notable stocks news, Glencore said it will not improve its offer for Xstrata after the company raised offer for Xstrata to 3.05 from 2.8.

This morning, Germany attempted to sell €5 billion in 1.5% 10 Year bonds. It sold just €3.61 billion directly to investors (who had submitted a less than auction clearing €3.91 billion in bids), forcing the German Treasury to retain 27.8% of the auction, €1.39 billion: the highest retained amount since November 2011 when it was 39%. For one reason or another: the yield was too low at 1.42% (compared to the 1.634 average), there was much more supply elsewhere, fears of what the ECB will do tomorrow, or who knows - the real bid to cover was a paltry 0.79 (all in BTC 1.09 including government retention) compared to 1.57 at the last auction and a 1.31 average at the past 4 auctions. In other words the auction was for all technical reasons, a failure, and only the second such "failure" of 2012. The immediate reaction was Bund futures down 22 ticks at 143.28 vs 143.70 before auction as the market digested the surprising disappointment, with the German 10-year government bond yield up 2.4 basis points at 1.41 percent vs 1.37 percent before auction. In summary, if the Germans needed any more reasons that funding the insolvent Eurozone at all costs up to an including debt monetizations, which may result in failed bond auctions for German itself, are not in their best interest, they just got one. The good news: in an email sent out immediately by the German Finance agency, the bond sale was "not a risk to the budget." Wouldn't want a failed bond auction to jeopardize the budget now.

In continuing my rant on the Apple v. Samsung verdict, I wish to make clear once again that the vast majority of consumers of Google's and Apple's products are absolutely oblivious to the business model of Google, the business practices of Apple and the shadowy aggressive survival tactics of the behemoth that is Microsoft. If I am correct in this assertion then the potential ramifications of Apple actually defeating Samsung in the patent case decided last week is also lost on most.

Silver is going to blow SKY HIGH!!

Here come the facts!!! Warning, if you get your feelings hurt over hearing the truth, simply move on. You may have a couple of quarters lefft.

Peripheral stock indices continued to outperform today, as market participants reacted to yet another reiteration of support for ECB’s pledge to do all necessary to defend the Eurozone. As a result, banks in Europe are trading up with decent gains, with health care sector in the red given its traditional appeal as a safe-haven investment. German DAX continues to consolidate above the key 7000 mark, being driven higher by Daimler and Deutsche Bank. Looking at other asset classes, there is visible outperformance in the short-end of the curve, with the in-focus Spanish 2s tighter by around 20bps mark. The ongoing speculation of an intervention in the bond market also weighed on the German Bund, which underperformed its US counterpart. USTs come off overnight highs to trade little changed, with the move attributed to deal related selling. In the FX market, the EUR continued to re-price risks surrounding what is inevitable an unlikely scenario of a Eurozone break up. To the upside, resistance levels are seen at the 55DMA line at 1.2395 and then at 1.2400, which is also an intraday option expiry for the session.

European markets opened lower as risk-off was observed across the asset classes as participants reacted to the disappointing data from China overnight. Continental equity futures have moved horizontally throughout the session so far with little newsflow or influential data to sway price action. Heading into the European open, little has changed as all European indices are in the red, being led lower by consumer goods and utilities. China posted a sharp narrowing in their trade balance surplus to USD 25bln from USD 32bln in June, as the growth in exports slows across the month. As such, it is not a surprise to hear the usual market chatter of the Chinese central bank taking an imminent move to cut their Reserve Requirement Ratio today. However, as nothing has materialised, the riskier assets have not seen any significant lift from the talk.

The initial boost given to European equities following weaker than expected overnight data from China, which renewed speculation of more stimulus measures, has faded throughout the morning. The major European bourses are now trading in negative territory at the North American crossover. The DAX is underperforming, weighed down by the likes of Commerzbank and Deutsche Telekom who both failed to impress markets with their earnings reports pre-market. However, thin summer volumes and another light economic calendar have once again been the theme for the morning, with only the UK Trade Balance for June gaining some market attention. Despite the larger than expected deficit, the ONS said that the figure is likely distorted by the extra public holidays.

European equities are seen in decent positive territory heading into the Wall Street bell, though a clear lack of direction has been observed as well a thin summer volumes . The FTSE-100 is the day's underperformer following last night's allegations made by the State of New York against UK bank Standard Chartered that the company violated US sanctions by making secret transactions to the tune of USD 250bln with Iran. The Spanish 10-year yield has held below the key 7.00% level, though higher than yesterday's close at 6.76 with the spread over the benchmark Bund is slightly wider by 1.2bps. Steepening seen in the Spanish 2-year over the last couple of days as ECB's Draghi commented that any periphery bond-buying programme would be in the short end has halted and is now wider by 13bps. The Italian 10-year yield briefly traded above the 6.00% level though has since pulled back to lows printed earlier, currently standing at 5.91%, its spread tighter by 10.4bps on the session.

Alas, the devil is in the details for Europe’s latest attempt at financial alchemy.  Much to the investment world’s apparent dismay yesterday, it turned out that the ECB’s Draghi had nothing very specific in mind when he pledged last week to defend Europe’s monetary union by any means necessary.  In theory, and most immediately, such a rescue would entail using printing-press money to mop up Spain’s leprous bonds, lest rates push above 7%.

Both the ECB and the BoE have held their benchmark borrowing rates unchanged at 0.75% and 0.5% respectively at their rate announcements. The ECB decision provided instant support for EUR/USD, in firm positive territory at the North American crossover. In the fast money move, European equity futures sold off, but half the move has been rapidly pared. In fixed income, Bund futures declined, and are now seen marginally higher on the day. Despite this decision being largely expected, markets have priced in action from the ECB today, and some analysts pointed to a potential rate cut today. This reaction was seen on initial disappointment and the retracement move made as the ECB could still announce measures at the press conference scheduled to begin at 1330BST/0730CDT. Risk appetite has boosted European equities are in positive territory at the North American crossover as speculation that the ECB will announce further stimulus at the press conference later today rises. Financials are the best performing sector led by BNP Paribas whose earnings beat analyst expectations despite a decline of 13% year-over-year for its net.

With everyone confused over why Draghi has put himself in a position from which he can't deliver and satisfy the market one hour ahead of the ECB announcement, and everyone placing their last bets on the EUR and the SPGBs before the ECB press release hits without really having any clue what the Italian has in store that will make both the EuroStoxx and the Bundesbank happy, here are some additional last minute "insights"  from Deutsche Bank that promise not to clarify the situation all that much. Because while "We'll be honest and say we've been totally confused about what to expect from the ECB ever since Draghi's speech last Thursday" DB does say: "In short it doesn’t look like we will get any explicit action today." Clear as mud.

The European Equities are in positive territory at the North American cross over. The CAC-40 was the initial outperformer following SocGen’s earnings. Despite reporting a drop of more than 40% in Q2 net profits year over year, the co. beat analyst expectations on Q2 CIB net and announced the completion of its cost cutting measures and traded up to highs of EUR18.57, though shares have since pulled back into negative territory. The FTSE-100 now leads the way despite a sharp decline in July’s UK Manufacturing PMI, which came in at 45.5, the lowest reading since May 2009. This saw GBP/USD also tumble to intra-day lows of 1.5619, though the pair has since stabilised around 1.5650. Elsewhere, comments from ECB’s Weidmann that “governments overestimate ECB possibilities”, going against general consensus and speculation that the ECB will announce further stimulus measures at tomorrow’s meeting, provoked a sharp drop in the riskier assets and the Bund to gain 8 ticks, though as it came to light that these comments were taken from an article published on June 29th, the move was pared.

European equities are trading in flat-to-positive territory going into the North American crossover with the FTSE-100 the primary laggard, being driven lower by individual earnings releases. Oil supermajor BP released a disappointing set of Q2 earnings, reporting a net loss of USD 1.39bln, pressing the stock lower by 4.25% at the midpoint of the European trading day. Data releases from Europe today have picked up in volume, but come alongside expectations, proving unreactive across the asset classes, as German unemployment changes matches estimates at a reading of +7K for July. The topic of a banking licence for the ESM has arisen once more, as German politicians have begun voicing their concerns on the issue, with a German senior lawmaker commenting that he cannot see an ESM banking licence becoming a reality. However, this appears to be another reiteration of the German political stance, and therefore not a particular shock to markets. With today the last trading day in the month, larger than average month-end extensions have proved supportive in the longer-end of the curve today, with notably large extensions in Germany, France and the Netherlands.

Not seeing many fiscal developments that would prompt significant bullish action...