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Overnight Sentiment: Short Squeezy

Tyler Durden's picture




 

The overnight session started with broad weakness following last night's downgrade of Spain to BBB- by S&P, once again led by Egan Jones, due to fears that an outright junking by one or all rating agencies is on deck, now that the status quo means business and is hard pressed to advice Mariano Rajoy that the ECB will not be toyed with, and if need be the same tactics used to oust Silvio Berlusconi just under a year ago can be applied to Spain which is now proving very difficult to handle: all Spain needs to do to ensure at least a few more months of banker pay is to demand a bailout. And yet it remains unwilling to stick to the simple script so far. Sure enough, Spanish bond prices tumbled, as did the EURUSD. Yet sometime around 4 am Eastern, a levitation commenced across all risk assets, EURUSD, and US futures, with Spanish bonds retracing the entire earlier loss, showing that the ECB has now once again shot itself in the foot and that any attempt to recreate the same playbook as was used to remove Silvio, will be far more problematic when applied to Spain.

The primary catalyst for what is seen as a squeeze is the announcement that for the first time since September 2011, Spanish banks borrowed less from the ECB, with gross borrowings declining to EU399.9 billion, down from a record EU411.7 billion, which was to be expected in the aftermath of the earlier announced TARGET2 Spanish liability. That this decline is driven primarily by a plunge in the current account deficit as the local import industry shuts down (the export has been long gone) and with it more and more of the economy, is irrelevant. For now the flashing red headline is all that is needed to send the EURUSD nearly 80 pips from overnight lows, even more horrible economic news out of Greece notwithstanding (more on that shortly). All that matters for now is how long the short squeeze in a ultra low liquidity market will persist for.

The full overnight recap comes from Deutsche:

Asian equities are mostly lower in the overnight session not helped by a negative US lead yesterday. Bourses in China, Taiwan, and South Korea are down -0.2%, -1.7% and -1.0% respectively. Chinese equities are down for the first time in three days on weaker auto sales and new bank loan data. The Hang Seng (+0.2%) is the key outperformer overnight while the AUD ($1.0287) hit an 8-day high following a better-than-expected headline employment print. Credit indices are off the day’s wides with new issues remaining the key focus in Asia.

The EUR reached a low of 1.2826 after S&P’s Spanish rating downgrade but is now off those lows as we type at 1.2865. Elsewhere, the Bank of Korea expectedly cut its benchmark rate by 25bp to 2.75%. As mentioned above, the lack of any meaningful positive catalyst saw markets endured another risk-off session yesterday. The S&P 500 finished the day -0.62% lower, not helped by Alcoa’s downbeat outlook on demand and Chevron’s Q3 profit warning as it expects substantially lower earnings than Q2. US credit indices stood firm and were only moderately wider despite the broader market tone.

In Europe main bourses were lower across the board led by the weakness in Spain (IBEX -1.00%). Peripheral bond yields were little changed yesterday though. A joint press conference following the meeting of Monsieur Hollande and Rajoy revealed little news and shed no light as to whether Spain is edging closer to a bailout request. We had some firmer European data flow yesterday with French (+1.5% mom v -0.3% mom expected) and Italian (+1.7% mom v -0.5% mom expected) IP both rising more than market consensus in August.

Moving on to today, we have inflation reports across the euro area as well as trade data and initial jobless claims in the US. We also have a handful of Fed speakers over the next 24 hours including Raskin, Plosser and Bullard. Italy is also scheduled to sell up to EUR3.75bn in 2015 bonds and will also offer between EUR1.5-2.25bn in reopening its 2016, 2018 and 2025 bonds. The G7 finance ministers are also meeting in Tokyo today, the Spanish cabinet will meet at 9am (London time) later and Merkel will meet with EU’s Barroso in Berlin at 3pm (London time).

 

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Thu, 10/11/2012 - 07:13 | 2877264 malikai
malikai's picture

It does feel squeezy, but it confirms what I was seeing last night.

Gold, Silver as of this morning: http://blog.quantsig.net/2012/10/11/gold-silver-3/

Thu, 10/11/2012 - 07:13 | 2877265 resurger
resurger's picture

Shot Squeeze today

Thu, 10/11/2012 - 07:15 | 2877268 malikai
malikai's picture

Shart squeeze?

Thu, 10/11/2012 - 07:18 | 2877271 AlaricBalth
AlaricBalth's picture

AlaricSqueeze...damn it!

Thu, 10/11/2012 - 07:39 | 2877300 samcontrol
samcontrol's picture

OT . middle east squeeze ?
48 hrs and 60 articles later the strike continues...

I'm just guessing here,,,, there is no quorum in Israel or this is really the silence before the storm.
Personally , i don,t beleive this early election BS.

Thu, 10/11/2012 - 07:15 | 2877266 Racer
Racer's picture

Oh a number of Fraud speakers spouting lies again today, can't wait....

/sarc

Thu, 10/11/2012 - 07:18 | 2877270 LongSoupLine
LongSoupLine's picture

Yet sometime around 4 am Eastern, a levitation commenced across all risk assets, EURUSD, and US futures,...

 

Must be that high volume bullish retail buying at 4 am...or, just another day at the House of Ponzi.

Thu, 10/11/2012 - 07:18 | 2877272 slaughterer
slaughterer's picture

Bullish inflows into all major financials for the last 5 days.  Jamie knows how to cook.

Thu, 10/11/2012 - 09:09 | 2877544 AlphaHunter001
AlphaHunter001's picture

 

LOL you mean he knows how to run an extremely profitable company - you can complain all you want but over the next 10 years JPM will be a better investment than almost anything. It's easy to hate successful people, you have to learn how to get rid of your ego and put it aside, look at investing from a logical framework.

Thu, 10/11/2012 - 07:22 | 2877275 slaughterer
slaughterer's picture

ZH caught the truth about short squeeze: most European desks are shorting DAX and EUR/USD with targets:

DAX 6,875

EUR/USD to 1.2450

If one wonders why futures are green today, it is because they are getting squeezed.  

Thu, 10/11/2012 - 07:23 | 2877278 malikai
malikai's picture

No wondering here. Suckers should have better tools.

Thu, 10/11/2012 - 07:24 | 2877279 slaughterer
slaughterer's picture

Uparrow if you LIKE the overnight game in WTI.   (The FB side of ZH, the uparrow).  

Thu, 10/11/2012 - 07:35 | 2877298 malikai
malikai's picture

I don't do much TA, but isn't this game doing technical damage to WTI by now?

http://blog.quantsig.net/2012/10/11/wti-7/

Thu, 10/11/2012 - 07:25 | 2877280 max2205
max2205's picture

4 am, that's when they turn back on the computers after a well deserved 5 min break.

Thu, 10/11/2012 - 07:25 | 2877283 slaughterer
slaughterer's picture

European trading world: rational, analytic, wrong

American trading world: emotional, gut-level, ???.  

 

Thu, 10/11/2012 - 07:27 | 2877286 sablya
sablya's picture

It started with the Aussie employment numbers.  Check the daily chart on the AUD/USD and compare it with the SPX, especially wrt the bounce at the neck line.

Thu, 10/11/2012 - 07:27 | 2877287 slaughterer
slaughterer's picture

Serious gambling on JPM earnings.  Will take 100 hours to reverse engineer the recipe they used to cook it.  CFO just stepped down.  

Thu, 10/11/2012 - 07:42 | 2877304 fonzannoon
fonzannoon's picture

Can't they just count their part of the 45 bil a month QE as earnings?

Thu, 10/11/2012 - 07:57 | 2877314 covert
covert's picture

the value of currency is falling.

covert.ias3.com/expose

 

Thu, 10/11/2012 - 07:42 | 2877303 whirlybird rules
whirlybird rules's picture

Remember what the dude said...   <.. the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough">

And Draghi will keep going until the populations of these countries say otherwise. Period.

Thu, 10/11/2012 - 08:01 | 2877321 youngman
youngman's picture

PM´s will be boring again today...whenever we are sellling our treasuries..they make sure PM´s are caged....

But what if you owned Spanish Debt?  I would have been out years ago..but do you bail now...or wait until the  "junk" hits...

Wells Fargo reports today....how much did they steal from their reserves again????  To make the big profit....

 

Then of course the VP Debate....the thrilla in Manillla....should be fun to watch...words to watch for ..hair plugs..and silver spoon

Thu, 10/11/2012 - 08:23 | 2877371 Mark Wilson
Mark Wilson's picture

Wells Fargo reports tomorrow, I believe.

Thu, 10/11/2012 - 09:06 | 2877525 AlphaHunter001
AlphaHunter001's picture

 

You guys do realize a downgrade in Spain is positive as this is a sign to that country to move ahead with the process. Once they receive funding, this will be bullish over the short term - any smart trader should be buying Spanish bonds on any such downgrade - the only worry is the election in Catalonia, if they leave Spain then all bets are off - although I would buy their debt as they are very productive and profitable, on par with the northern nations

Thu, 10/11/2012 - 09:25 | 2877576 DowTheorist
DowTheorist's picture

No wonder on Oct 4, gold and silver made new highs thereby confirming the primary trend.

 

http://www.dowtheoryinvestment.com/2012/10/dow-theory-update-for-oct-4-v...

 

Gold will be the last man standing. However, not all gold is born equal:

 

http://www.dowtheoryinvestment.com/2012/10/not-all-gold-is-born-equal-go...

 

 

 

 

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