Same Cliff Different Day

Tyler Durden's picture

We could say that news is actually relevant or matters in this "market" but we would be lying, just as we would be lying if we said that this market has not become so utterly predictable, with yesterday's late day market surge - on yet another ridiculous catalyst - visible from so far away, it was almost painful to watch it take place in real time. Sure enough, futures are now sliding back, and giving back much of yesterday's gains - but don't worry, in a day full of even more meetings and flashing red headlines, at least some combination of carefully phrased MSM words will set off today's algo-driven buying frenzy, guaranteeing yet another "retail investor" decides they have had it with this farcical "free market" casino for ever.

There was actual news out of Europe, where Italy sold 5 and 10 year bonds in the first underwhelming auction in months, placing just €5.88 billion of a maximum €6.0 billion target, at rates that were higher compared to the November auction: €3 billion in 10 Years sold at 4.48% compared to 4.45% in November, although the Bid to Cover was modestly higher at 1.47 compared to 1.18 previously; €2.87 billion in 5 Years sold at 3.26% vs 3.23% in November, and a virtually unchanged BtC of 1.29 vs 1.24 last. We also learned that the French economy grew by 0.1% in Q3, below consensus expectations of a 0.2% growth rate, with the surprise once again held in capital investment, or the lack thereof, which fell 0.3% Q/Q. Finally we learned that Spanish November retail sales tumbled 7.8% in constant prices, but somehow this was better than expected. A far bigger problem for Spain is that its housing prices are expected to continue tumbling as Telegraph's Ambrose Evans-Pritchard reminded (original Zero Hedge article from June).

As noted earlier, none of this actually matters. What matters is today's second to final episode of the Fiscal Cliff drama, summarized by Jim Reid best: President Obama is expected to meet with Congressional leaders at the White House today. The meeting will be attended by Senate Majority Leader Harry Reid, House Speaker John Boehner, House Minority Leader Nancy Pelosi and Senate Minority Leader Mitch McConnell. The President had a call with Reid, Boehner and Pelosi late Wednesday night to receive update on the negotiations but no details about the conversations have been given. As noted by the Washington Post, perhaps the most significant development is that McConnell, who has signalled an interest in cutting a deal, will be engaged directly in White House discussions for the first time. According to the WSJ, most officials believe any deal is most likely to emerge in the Senate so all eyes will be on the congressional leaders’ meeting later today ahead of a hectic (and cold) weekend ahead for those in Capitol Hill. Beyond that, the Dow Jones Newswires also noted that Republicans will hold a closed-door caucus meeting at 9am ET Monday.

And just in case political headlines were not enough, prepare to see massive market surges on flashing red headlines forecasting clear skies: "while the House may be in session from Sunday through to the 2nd of January, we may need to watch the weatherman for some cues on how travel plans will be affected by the Northeast winter snow storm that is causing havoc in many parts of the country."

What can one say: fun "market."

More from Jim Reid:

It was a session of two halves for US markets with ‘hope’ arriving late in the day to arrest the ever increasing pessimism of a deal before year end. With just five days left on the cliff-countdown calendar, yesterday saw the S&P 500 drop as much as -1.29% to hit an intraday low of 1,402 and the Dow cross below 13,000 for the first time since early December. These early losses were prompted by comments from Senate Majority Leader Harry Reid who said that it looks like the fiscal cliff is where the US is headed. Overall there has been little progress made over the last 24 hours other than more finger-pointing from both sides, which are still seemingly as far apart as ever. Hopes of an 11th-hour deal rose later during the day on reports that the House of Representatives will reconvene on Sunday (6.30pm ET). The news sparked a late rally to see the S&P 500 (-0.12%) close off the day’s lows and the Dow march back up to 13,096. The VIX index also recovered and finished the day unchanged after having reached a 5-month high of 20.9 at one point yesterday.

In the latest development after the closing bell overnight, President Obama is expected to meet with Congressional leaders at the White House today. The meeting will be attended by Senate Majority Leader Harry Reid, House Speaker John Boehner, House Minority Leader Nancy Pelosi and Senate Minority Leader Mitch McConnell. The President had a call with Reid, Boehner and Pelosi late Wednesday night to receive update on the negotiations but no details about the conversations have been given. As noted by the Washington Post, perhaps the most significant development is that McConnell, who has signalled an interest in cutting a deal, will be engaged directly in White House discussions for the first time. According to the WSJ, most officials believe any deal is most likely to emerge in the Senate so all eyes will be on the congressional leaders’ meeting later today ahead of a hectic (and cold) weekend ahead for those in Capitol Hill.

Indeed, while the House may be in session from Sunday through to the 2nd of January, we may need to watch the weatherman for some cues on how travel plans will be affected by the Northeast winter snow storm that is causing havoc in many parts of the country. Beyond that, the Dow Jones Newswires also noted that Republicans will hold a closed-door caucus meeting at 9am ET Monday.

Continuing on with the theme, DB’s Frank Kelly yesterday said that he remains hopeful that both sides will reach a significantly watered-down version of an agreement to delay spending cuts before year-end, although he notes that the sense of urgency amongst Congressional members has been lacking. Frank’s comments were made before all the overnight developments we mentioned above. For those interested in his latest take on the situation, Frank will again host a conference call today as part of a daily update series. His call and replay details are provided at the end of today’s EMR for those interested.

In reality the weaker data also weighed on yesterday’s price action. US consumer confidence fell short of market consensus (65.1 v 70.0) and was down for the second consecutive month reflecting fears of the ‘fiscal cliff’. The sharp decline in future expectations (66.5 v 80.9) caught our eye which also turns out to be the biggest one-month fall since August 2011 – a time when market volatility picked up sharply amid US debt ceiling and rating downgrade concerns. Although initial jobless claims (350k v 360k) and new home sales (4.4% v 3.3%) came in better than expected, risk sentiment was largely driven by the budget impasse.

Moving on to the overnight session, Asian equity markets are off to a reasonably positive start overnight as hopes of a deal are lifted ahead of the meeting today. The Nikkei (+0.8%) is stronger as the JPY hits a 28-month low against the greenback (86.5) as a disappointing industrial production (-1.7% v -0.5%) print boosted the case for more monetary accommodation. Elsewhere, Japan’s headline CPI fell -0.2% yoy in November which was in line with consensus.

Turning to the day ahead, data flow will be relatively thin with the main highlight being the Chicago PMI and US pending homes sales. Ahead of that, Italy is targeting to auction up to EUR3bn in each of 5yr and 10yr bonds and France will be reporting its final Q3 GDP and consumer spending numbers. Fiscal cliff developments remain the key focus though with the White House meeting later likely to take center stage. Meanwhile the Senate also convenes today at 9am US EST (2pm London).