Overnight Sentiment: No Progress Means Lots Of Progress

Tyler Durden's picture

Another week begins which means all eyes turn to Europe which is getting increasingly problematic once more, even if the central banks have lulled all capital markets into total submission, and a state of complete decoupling with the underlying fundamentals. The primary event last night without doubt was Catalonia's definitive vote for independence. While some have spun this as a loss for firebrand Artur Mas, whose CiU (Convergència i Unió) lost 12 seats since the 2010 election to a fresh total of 50, and who recently made an independence referendum as his primary election mission, the reality is that his loss has only occurred as as result of his shift from a more moderate platform. The reality is that his loss is the gain of the far more radical ER (Esquerra Republicana), which gained the seats Mas lost, with 21, compared to 10 previously, and is now the second biggest Catalan power. The only difference between Mas' CiU and the ERC is that the latter is not interested in a referendum, and demand outright independence for Catalonia as soon as possible, coupled with a reduction in austerity and a write off of the Catalan debt. As such while there will be some serious horse trading in the coming days and week, it is idiotic to attempt to spin last night's result as anything less than a slap in the face of European "cohesion." And Catalonia is merely the beginning. Recall: "The European Disunion: The Richest Increasingly Want To Fragment From The Poorest" - it is coming to an insolvent European country near you. 

In other news, Europe will hope and pray that third time is the charm to "fix" Greece as Eurozone ministers meet momentarily in Belgium, in abject futility, to once again attempt a viable solution for Greece following last Monday's humiliating second attempt. Futile, because there is no solution for Greece absent a Grexit and return to the Drachma, both of which will happen eventually, once all Greek assets have a German and French lien on them and the society has completely collapsed. Certainly don't hold your breath for a solution today: the Finnish FinMin said a Greek solution may take place on December 3 (at the latest... riiiiight). In other news, expect lots of "hope", "confidence", "optimism", "energizing" and "consideration", all European keyword for total failure. 

Other less than stellar news out of Europe was that the Spanish budget deficit contrary to all "hope", "confidence", "optimism", "energizing" and "consideration", would rise to 6.4% in 2014, already worse than just revised. For a realistic assessment, double the number but it is notable that Spain is once again slowly but surely becoming Greece, if not Uganda.

Concluding the "good" news out of Europe was Italian consumer confidence, which just fell to its lowest level, ever.

Elsewhere, in the US we got news that hope of a quick Fiscal Cliff "compromise" has been greatly exaggerated. We fully expect the market to take note when every other source of interim hope is exhausted and just before everyone dumps. Don't worry: one can always sell faster than everyone else.

What to look forward to today, via SocGen:

The Eurogroup meeting today takes precedence before everything else and has the ambition to finalise details on how to bring Greece back on a sustainable debt path that would, according to the latest information, see its debt/GDP rate fall to 124% and not 120%, which in itself is a small win for the EU over the IMF. Details of the financing are still sketchy but should be unveiled relatively soon. As with previous meetings and summits, EUR/G10 was bid up ahead of today but the response in the past has been to sell the fact. Arguably, the surprise increase in the IFO (only the first gain in seven months, typically three successive increases are required to confirm a change of trend) also caught out a few shorts and puts EUR/USD within a whisker of 1.30. As we witnessed on Friday, moves in G10/JPY can have repercussions for G10/USD. The weekly close of GBP/USD above 1.5944 (100d ma) could set the scene for further upside this week. The 0.75 correlation of GBP/USD with stocks (15d rolling average) suggests the next move in stocks will be key rather than rate spreads, as we wait for the Budget statement next week. Can the S&P extend beyond 1,406 to 1,426?


A fairly low key start to the week for data features German and Italian consumer confidence and regional Fed manufacturing surveys. Belgian and French debt supply is also scheduled. ECB member Constancio will discuss ‘how to complete and repair EMU'

Full recap from DB's Jim Reid:

Fiscal cliff negotiations are likely to be the immediate focus this week as US lawmakers return to DC following the Thanksgiving holiday long weekend. Ten days have passed since the “constructive” meeting between Obama and congressional leaders at the White House, and in that time “little progress” has been made according to Dick Durbin the second most senior Democrat in the Senate. In comments aired on ABC on Sunday, and published by the Chicago Tribune, Durbin said that “Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess…..much progress hasn’t been made”.

The WSJ is reporting that Obama could hit the road this week to garner public support for this proposal to raise taxes on upper income earners. As a reminder of the gathering urgency there are only 36 days left until the fiscal cliff is due to kickin, and from a practical stand point, exactly 4 weeks until the Christmas break to bridge the outstanding gap between the Democrats and Republicans.

We’ll preview more of the week ahead below but for now most overnight markets are trading with a weaker tone despite the solid gains from Europe and the US on Friday. The Hang Seng (-0.21%), KOSPI (-0.07%) and Shanghai Comp (-0.15%) are all lower as we type, as are S&P500 futures (-0.36%). Risk sentiment is being weighed by headlines from the Catalan election yesterday suggesting that the pro-independence Esquerra Republicana party have become the 2nd largest political party in the regional parliament behind the incumbent CIU. Bucking the regional trend, the Nikkei is trading 0.73% higher as we type helped by the BoJ’s October meeting minutes which showed that members will maintain easing until a 1% inflation goal “has been steadily maintained”. Elsewhere 10yr UST yields are 2bps lower (1.672%) in keeping with the overall weaker risk sentiment. Brent crude (- ]0.2%) is also paring some of Friday’s gains, which was driven by reports of protests in Egypt against the country's President who issued a decree that prevents his actions from being challenged by the judiciary. Interesting Egyptian stocks were 9.6% lower on Sunday.

Turning back to Sunday’s Catalan elections, it appears that virtually all of the votes have been counted now. The radical-leftist Esquerra Republicana (ER) party, who support a referendum vote, more than doubled its seats in the 135-seat regional parliament from 10 to 21. Their gain was at the expense of Convergència i Unió (CiU) who lost 12 seats (from 62 to 50) but who hold onto their position as the largest party. Two other separatist parties, the CUP and the ICV, gained 6 seats to a combined 16 seats. It unclear at this stage who the CIU will choose to form a coalition with, although reports suggest that the ER party is the obvious choice which will increase tensions with Madrid. The CiU had campaigned on a pledge to hold a referendum on independence in response to a popular separatist sentiment among Catalans but the Spanish central government have maintained that such a referendum is unconstitutional. As DB’s Wall & Moec have reminded us previously, the CIU remains a moderate and pro-business party and independence from Madrid has never been CIU’s goal and its likely that CIU will soften the rhetoric post the election. However such an election result means we have to keep an eye on this story.

Looking at the week ahead, in Europe the focus will be on the Eurogroup/IMF meeting which will start at 11:30am London time today to decide on measures to shore up Greece’s debt sustainability and the release of the next tranche of funds.

Ahead of today’s meeting, Euro finance ministers and the IMF held a 3-hour long teleconference on Saturday which fell short of a definitive solution although officials said the teleconference “helped to the extent we now know where all the red lines are and in terms of numbers, the differences are very small".

Indeed, the issue of official sector write-downs continues to be one of those “small” issues. The ECB's Asmussen told Germany's Bild newspaper over the weekend that a Greek deal would be reached without a debt writedown, and will include a package of substantial interest rate reductions and a debt buyback. Meanwhile, Der Spiegel reports that the IMF consider a haircut as unavoidable. DB's Mark Wall and Gilles Moec expect a deal for Greece to be agreed on Monday through a politically acceptable combination of financing parameters to allow the Troika to hit the 120% of GDP target in 2020. The objective of the current round of decisions will be to 'kick the Greek can' beyond the German elections in September next year, leaving questions on Greece's sustainability to linger into 2013. Let’s see if we get an agreement over the next 24 hours but a deal certainly needs to be struck before Greece’s EU5.4bn debt redemption on 14 Dec to avoid a default.

We also had no agreement over the EU budget from last Friday’s summit, which once again highlights the north-south division within the Eurozone. Leaders are now said to likely meet again on this early next year. Merkel played down the consequences of the meeting and said she had not expected a deal at the first attempt.

Looking more closely at this week’s data docket, in Europe we have German and Italian consumer confidence today. On Tuesday, France’s jobless data and consumer confidence are scheduled as is Spain’s October budget. Over the remainder of the week, Eurozone money aggregates and German CPI data are scheduled for Wednesday, German unemployment and Eurozone business/consumer confidence on Thursday, followed on Friday with Eurozone unemployment and flash CPI. Italy will auction 5/10yr bonds on Thursday.

In the US, today we have the Dallas Fed Manufacturing survey. In the remainder of the week the main economic releases of note are Tuesday's durable goods and consumer confidence numbers; Thursday's Q3 GDP (2nd reading) and Friday's Chicago PMI and personal income. In terms of housing data, the Case-Shiller price index (Tues), new home sales (Wed) and Pending home sales (Thurs) are scheduled through the week. The  Fed's Beige book is published on Wednesday. The “Sandy” effect in these US releases will be keenly monitored.

In China, industrial profits for October (Tues) and the official Nov manufacturing PMI (Sat 1st Dec) are the key prints.

However as we said at the start fiscal cliff headlines are likely to start to increase again and will be crucial to the performance of most global markets.

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EL INDIO's picture
No Progress Means Lots Of Progress



Where does he get these titles !

Just Genius

GetZeeGold's picture



The gerbil runs on the wheel at ever increasing speed never sensing the lack of progress.


Non Passaran's picture

Meant to discourage the well-going drive for the secession of Texas, of course.

SmallerGovNow2's picture

Exactly what I was thinking...

mvsjcl's picture

Fiscal fucking cliff.

What a total sham. Why didn't they call it The Great Budget Impass? Or The Stuck Spending Spigot? Because they don't sound dire enough! They don't make you think that something drastic needs to be done immediately! Because if nothing is done, WE'RE GONNA FALL OFF THE CLIFF AND DIE!!!


Yeah. Whenever they come with cute buzzwords like Fiscal Cliff, and you see all the MSM use the term 24/7, you just know you're about to get screwed.

CheapBastard's picture

Bring Hank Paulson back; he performed wonderfully scaring people it's the End of the World unless you hand over hundreds of billions to Wall Street and his alma mater, GS.

Boilermaker's picture

And...he can sum it all up in 2 pages.  If brevity is the essence of wit, this is one witty fucker.

GetZeeGold's picture



Dude....the art of pithy is a gift. Not everyone has it.


Our current el Presidente can make people faint at the sound of his voice...but that doesn't mean anything is really going to.....change.

francis_sawyer's picture

Just give me the Fiscal 'Cliff Notes' version... Otherwise ~ My assignment won't be in on time...

Boilermaker's picture

1,400 ES is clearly being 'defended'....again.

I don't know why round numbers mean jack shit but, evidently, they do.  What's more is it is so fucking obvious you would *think* they wouldn't do it.

But, hey, what do I know?

nmewn's picture

"...and from a practical stand point, exactly 4 weeks until the Christmas break..."

But lets remember, this is a crisis of monumental proportions with the "republic's" very survival at stake!!!...so lets get it done before we take ANOTHER vacation.




fonzannoon's picture

i admire all your guys passion. i just have jazz music playing in my head all day now. 

GetZeeGold's picture



Currently listening to this......no I'm not kidding. Fair warning....if your head explodes it's not my fault.




GACGB1000's picture

This total Eur / US fiasco is obviously engineered. Why?
To disable China just as they were on the ascent.

I think they'll be successful.

Think about it.

They've mired the world in pessimism for years when a solution could have been found easily.

Result: Once optimistic societies have now become frugal... possibly unnecessarily. Demand from China at a critical moment ... negative.

Frastric's picture

If Eastern Europe can get split into little countries (think Yugoslavia) then Catalonia will become a country as well, but it will be bloody since (just like in former Yugoslavia) Spain will do anything to stay 'whole'. Smacks to me of a second Spanish civil war coming...

Non Passaran's picture

Extremely unlikely, but either way, keep stacking.

GetZeeGold's picture



Yeah...but then again CNBC assured me well over a decade ago that gold was going nowhere and YHOO was the stock to own.


I decided to do the opposite.

CheapBastard's picture

Why should the 'non-debtors' bail out/pay for the 'Debtors' and risk takers?  Why should the Frugal be saddled with the losses of the risk taker-debtors? The non-debtors did not take the risk and did not gamble to gain the profits.

q99x2's picture

The fiscal cliff was developed by a bankster think tank (oxymoron or morons) and pronounced by Bernank to begin austerity (the take down of a country by banksters) in the US. So that is what to expect. It is a tool for transferring more wealth to them. But they have to keep the likes of Dalio on board so it is a method of fine tuning to allow recession/depression with (false) positive GDP. Privatization without recession. Only the poor that have little impact on financial statistics will suffer.

SKY85hawk's picture

What are people complaining about?

One side of their mouth says Govt must reduce spending, and the other side says no cuts!
The100 billion dollar cut in DISCRETIONARY spending will not affect the social safety Net.

It will affect lots of 'non-essential' govt employees.
I suspect all these sound bites are coming from people that don't want to suffer like the rest of us have.

How many times have you heard of Fraud and Waste  in Medicare?

The Fiscal Cliff is a good example of the House and Senate actually doing their job.

There should be more of this, or we'll be in as much trouble as Greece and Spain!