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Advance Look At This Week's Key Event: Is Europe's Latest Velvet Revolution Credible?

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From Goldman Sachs

Last week was another milestone in terms of escalating sovereign tensions in the Eurozone. For several days it was not clear who would lead the next Greek government. Similar uncertainty regarding the future of the Italian government triggered a severe BTP sell-off, which then led to a clearinghouse margin call for Italian debt.

But as so often in Europe, looking down the abyss led to a last-minute policy response. Greek and Italy will now both be led by national unity governments under Lucas Papademos and Mario Monti, respectively. Both governments also seem to enjoy broad support to push through urgent reforms – at least for now.

There are still many questions, including the increasing debate about the constitutional set-up of the Eurozone and a possible Treaty change in the future. Moreover, it is possible that even these new governments in Greece and Italy will struggle to push their reform agendas through. But it will take some time before we know. And until then, it is quite likely that sovereign risk premia decline – at least temporarily. Following this logic, we initiated a long EUR/$ recommendation on Friday at a level of 1.3710 for a quick bounce to our initial target of 1.40.

We also added a long RUB/HUF recommendation last week. This was partly driven by the continued upward drift in oil prices, which should boost the Ruble. At the same time, balance sheet pressures for many Eurozone banks potentially creates external funding challenges for countries in the European periphery, like Hungary, with substantial external debt roll-over needs.

Looking ahead in the upcoming week, markets will likely scrutinise the first steps of the new Greek and Italian governments. The appointment of key cabinet positions will be of relevance to establish credibility. However, it may be a bit too early for the first concrete policy steps.

Beyond politics, three themes dominate the data schedule. First, there is a raft of Q3 GDP releases in Europe (Germany, France, Eurozone, Hungary, Poland, Czech Republic). The numbers will likely still be mixed with more uniform weakness expected in the Q4 numbers. Second, we will see the beginning of the monthly survey season with the US Empire and Philly Fed releases. Finally, there is a raft of Fed speakers scheduled to talk about the economy and Fed policy.

Less thematic but also relevant are retail sales numbers in the UK and the US. Of course, we will have a look at the monthly TIC numbers to gauge the capital flow pressures for the Dollar.

Finally, as our weekly idea, we would be short $/MXN, as we think broader Dollar weakness may be more pronounced in a week where a raft of Fed speeches will likely emphasise the dovish outlook for US monetary policy. Declining fiscal risk premia in the Eurozone, combined with high cross asset correlations, could push the Dollar lower as well. At the same time, stabilising oil prices will probably boost the Mexican terms of trade. Last week’s short INR/KRW idea returned about +0.8% partly helped by the weak Indian industrial production numbers, which we had highlighted as important.

Monday 14 November

Japan GDP (Q3): Output is likely to show a notable rebound on the back of the post-earthquake rebuilding effort. Consensus expects +1.5% qoq after -0.5% qoq in Q2.

Eurozone Industrial Production (Sep): Following weak national IP numbers in a number of countries, Eurozone IP will likely drop by about -2.3% mom, according to consensus.

Polish GDP (Q3): Consensus expects a contraction of -0.7% qoq after a flat reading of 0.0% in the second quarter.

Also interesting: Indian wholesale prices (Oct); New Zealand retail sales (Q3).

Tuesday 15 November

UK CPI (Oct): With the BOE still in QE easing mode and inflation running at 5% and above, it is always interesting to see if there is any sign of abating price pressures. Consensus expects a reading of +5.1% yoy after +5.2% yoy in September.

German, French, Eurozone GDP (Q3): There will be a raft of Eurozone GDP data covering the third quarter, though higher frequency data suggest that most of the recent slowing in activity data will only be reflected in the next GDP release. For Q3, consensus expects the following qoq non-annualised numbers: France +0.4%, Germany +0.5%, Euro Area +0.2%.

Fed Speeches: With the rising focus on the Fed policy options going forward, Chicago Fed President Evans’ speech on the Dual Mandate may be interesting. Evans is also scheduled to appear on CNBC, while Fed’s Bullard, Williams, and Fisher will all make public appearances.

US Retail Sales (Oct): After a strong reading last month, consensus expects some slowing to +0.3% mom after +1.1% in September.
Also interesting: US Empire survey, Polish GDP.

Wednesday 16 November

Eurozone CPI (Oct): Despite the elevated readings in CPI in recent months and consensus expectations that the October number will again come in at +3.0% yoy, the focus is probably slipping away from inflation fears. With more fiscal contraction and slower growth in many Eurozone countries, inflationary pressures will likely abate over the medium term. Only a substantially higher reading than expected would change market expectations of further ECB rate cuts to 1.00%.

UK Labour Market Data (Oct): Consensus expects a slight increase in the unemployment rate to 5.2% from 5.1%.
US CPI (Oct): Market expectations are for a stabilisation in core and headline inflation pressures. The expected small uptick in the year core reading to 2.1% from 2.0% yoy will likely be offset by a decline in the headline component to 3.7% from 3.9%.

US TIC Flows (Sep): More than the headline number, the composition of TIC flows will be important. With risk aversion still very high during September, we would expect more inflows into USTs, but at the same time small net outflows in all other categories.

US Industrial Production (Oct): Consensus expects a small improvement to +0.4% from +0.2% mom in September, and a small increase in capacity utilisation.

Also interesting: BOE Inflation Report, Fed speeches from Lacker, Rosengreen.

Thursday 17 November

Indian Wholesale Prices (weekly): With clear signs of slowing economic activity in India but still-high inflation rates, it will be interesting to see how higher frequency indicators of India inflation evolve.

UK Retail Sales (Oct): Consensus expects a notable slowing in UK retail sales growth to -0.3% mom (ex auto fuel) from +0.7% in September.

US Philly Fed Survey (Nov): With the Empire earlier this week and the Philly fed index, the monthly survey season starts again. Consensus expectations are for a stable reading of +9 from 8.7 in October.

US Jobless Claims (weekly): After better readings in recent weeks, there will be some focus on whether US activity is starting to accelerate further.
Hungary GDP (Q3): Consensus expects notable slowing to +0.7% from 1.5% qoq in Q2. Industrial production will be released as well.

Also interesting: Czech GDP (Q3), US housing starts, Fed Speech by Dudley, RBA Minutes.

Friday 18 November

Canada Consumer Prices (Oct): Consensus expects consumer prices to drop notably to +2.7% yoy from 3.2% in September, while mom core readings are also expected to decline, to +0.1% from +0.5%.

More Fed Speeches: After a week full of public appearances by Fed officials, Friday will see the second appearance this week by Dudley (on the economy), as well as Fisher and Williams.

Also interesting: Philippines Balance of Payments, Chile GDP (Q3).

 

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Sun, 11/13/2011 - 18:10 | 1874178 Careless Whisper
Careless Whisper's picture

The Careless Whisper Sunday Afternoon Update

 

Poll: 86% Say US Economy "In Bad Shape"

http://thehill.com/blogs/ballot-box/polls/193193-poll-obama-disapproval-...

Herman Cain $50 Per Person Fundraiser Is Now Free

http://www.postonpolitics.com/2011/11/herman-cains-50-a-head-event-in-we...

Cop On Cop Shooting; No Arrests; Names Withheld

http://www.sun-sentinel.com/news/broward/lauderhill/fl-lauderhill-cop-sh...

Sunday House Hunting: Michael Moore's Lakefront Vacation Cottage Exposed

http://www.dailymail.co.uk/news/article-2060704/Occupy-protests-Michael-...

Sunday Condo Hunting: Exclusive PICS & FLOORPLAN Sandy Weill $88,000,000 Manhattan Pied-A-Terre

http://realestalker.blogspot.com/2011/11/friday-floor-plan-porn-sanford-...

Sunday House Rentals: College Students (air quotes on that last word) Rent McMansions

http://www.nytimes.com/2011/11/13/us/homework-and-jacuzzis-as-dorms-move...

Chevy To Unveil 85 hp Spark Mini At LA Auto Show; 10 Airbags Will Save You

http://www.carbuzz.com/news/2011/11/13/2013-Chevrolet-Spark-Mini-Introdu...

VIDEO: UFC Has New Heavy Weight Champ, Took Less Than 2 Minutes

http://www.youtube.com/watch?v=65ChS2j8Ucg

VIDEO: YouTube Sets Make-Believe Wall Street Riot As "Age Restricted"

http://www.youtube.com/user/EidolonPictures

 

Sun, 11/13/2011 - 18:55 | 1874233 Mohan
Mohan's picture

Herman Cain $50 Per Person Fundraiser Is Now Free

Sure why not? Here is how pizza economics!

  1. One large oone-toppic pizza for 9.99.
  2. You order a lots of them. Only few show up. You give away the rest.
Sun, 11/13/2011 - 19:06 | 1874247 upWising
upWising's picture

Will he take a coupon from Uncle Tom's Pizza?

Sun, 11/13/2011 - 18:27 | 1874197 JR
JR's picture

Or, "Political power grows out of the barrel of a gun." -- Mao Tse-tung

Sun, 11/13/2011 - 18:30 | 1874202 AndrewCostello
AndrewCostello's picture

This whole thing is planned, so the Banksters can take over European Governments and seize all the Gold.  Instead of borrowing more money, European countries should freeze the debt and pay it back in manageable chunks.

My friends, it is time for rebellion.  Real rebellion.  Because the tyrants have almost won.

 

Read:

http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref

Sun, 11/13/2011 - 21:10 | 1874412 smiler03
smiler03's picture

I suppose spamming here is cheaper than Google Ads. Call me a cynic.

Edit: Your profile is worth a laugh... Biography "Nobodies business but mine.".... just like your book.

Sun, 11/13/2011 - 18:31 | 1874203 slewie the pi-rat
slewie the pi-rat's picture

German, French, Eurozone GDP (Q3)

what could possibly go wrong?

Sun, 11/13/2011 - 19:01 | 1874239 Sudden Debt
Sudden Debt's picture

Q3 is still good, it's Q4 that will show a mayor crimp.
So the most damage will be made in february march 2012.

Sun, 11/13/2011 - 20:05 | 1874318 slewie the pi-rat
slewie the pi-rat's picture

you seems so calm

are you ok?

i wonder what  the swiss will manufacture, account-wize

Mon, 11/14/2011 - 04:54 | 1874960 Overflow-admin
Overflow-admin's picture

book cooking reciepes?

Sun, 11/13/2011 - 18:37 | 1874213 LookingWithAmazement
LookingWithAmazement's picture

Hey Americans, let's pay attention to your dinosaur-lobbyist-corporate-corrupted-economy-and-political-system again. High time, the more now the super-committee will be a failure. Start out with this video:

http://www.youtube.com/watch?v=G49q6uPcwY8&feature=player_embedded

Did Obama bring any change in all this?

Sun, 11/13/2011 - 18:54 | 1874231 TheSilverJournal
TheSilverJournal's picture

Don't take my stuff from me.

Sun, 11/13/2011 - 19:03 | 1874243 jcaz
jcaz's picture

Sheesh- Greek people are so bitter.....

Sun, 11/13/2011 - 20:44 | 1874375 LookingWithAmazement
LookingWithAmazement's picture

An ad hominem is not an argument.

Sun, 11/13/2011 - 18:39 | 1874215 Oswald Spengler
Oswald Spengler's picture

How many battalions does the ECB have?

Sun, 11/13/2011 - 19:23 | 1874262 CPL
CPL's picture

How much ink, paper and media outlets do they have?

 

That's your answer.  They can keep making shit up with no more value tied to it than a six year old can convince their parents that there is something nasty under the bed.

 

They certainly have a wild imagination on what terms like money, value and energy are.

 

Sun, 11/13/2011 - 18:54 | 1874230 bank guy in Brussels
bank guy in Brussels's picture

The 'revolution' in Europe is yet to come ... some months yet of this 'austerity' business, and it may indeed be revolution, not likely very velvet.

Sun, 11/13/2011 - 19:00 | 1874238 Mr. Lucky
Mr. Lucky's picture

We are in for a long nasty winter.

Sun, 11/13/2011 - 19:05 | 1874246 upWising
upWising's picture

Not The Velvet Revolution.  The Pleather Revolution.  Looks like a real leather commodity but it is really just plastic.  Won't last long.  Will rip and tear in no time, and will look like hell sooner than the buyer can imagine.  Does not perform well in castle-burning scenarios.

The PLEATHER revolution.  (Mme. LeGarde as the SpokesRobot, though Frau Merkle does look "interesting" in German Jackboots and a pleather corset).

 

 

Sun, 11/13/2011 - 19:13 | 1874254 disabledvet
disabledvet's picture

Not the impression i had from the video feeds of Italy's celebration of the PM's resignation. "Mafioso" they called him--and by extension the government as well.

Sun, 11/13/2011 - 18:55 | 1874232 TradingJoe
TradingJoe's picture

Market will ramp into year end, with or without much needed correction, it's "that time of the year" and the greedy bancheros couldn't care less about anything else!
The point of a peaceful resolve of "this" has long passed and outright violence, allovertheglobe, will be the only, sad, "answer" and ending of IT all!!!
Expect this "bread and circus" farce to go on until WETHEPEOPLE finally stand up! Wheneverthefuckthatwillbe!

Sun, 11/13/2011 - 20:43 | 1874370 walküre
walküre's picture

We need to beat them at their own game. Maybe print our own currency that will be accepted by the 99%? Open a bank where the 99% chose to deposit their money? It will be a fight to get licenses and approvals because the cabal has their fingers everywhere and controls everything.

It is their "perogative" after all.

There are real ways to bleed them dry in the long run but it will take alot of resolve.

Sun, 11/13/2011 - 19:00 | 1874235 trampstamp
trampstamp's picture

The Euro is such garbage it's pathetic. Those new PM's will do nothing, but plunder some more and ask for more handouts so they can pay for their new vacation homes. They are the scum of scum to top it off(Goldman choir boys).

Sun, 11/13/2011 - 19:04 | 1874244 Sudden Debt
Sudden Debt's picture

It would take 30 to 40 years in sound managment to fix this problem. The markets give them 12 months in total.
You can't fix 50 years of fucked up politics in that short of timeframe.

Sun, 11/13/2011 - 19:02 | 1874241 Caviar Emptor
Caviar Emptor's picture

There's a lot of headwinds at work now. All are being soft-peddled, nearly covered-up. 

Sun, 11/13/2011 - 19:06 | 1874248 BORT
BORT's picture

Anyone care to comment in the rapid and steep drop in crack spreads?

Sun, 11/13/2011 - 19:22 | 1874260 Oswald Spengler
Oswald Spengler's picture

Over supply

Sun, 11/13/2011 - 19:39 | 1874274 Caviar Emptor
Caviar Emptor's picture

Crude rose sharply as inventories are dropping worldwide and key producers show production fallling off. Production costs rose sharply for a bunch of reasons. All this resulted in backwardation. Gasoline prices in many parts of the US are at the highest levels ever for October, surpassing 2008, but demand is weak. In better times, gasoline would top $4. Biflation

Sun, 11/13/2011 - 19:27 | 1874263 bombimbom
bombimbom's picture

http://www.france24.com/en/20111113-obama-calls-china-play-rules-apec-su...

Growing tensions over trade agendas at APEC summit

 

Sun, 11/13/2011 - 19:40 | 1874277 Oswald Spengler
Oswald Spengler's picture

Europeans should demand a repudiation of all debt.

Sun, 11/13/2011 - 19:44 | 1874282 Bansters-in-my-...
Bansters-in-my- feces's picture

Fuck Goldman Sachs.

And this Monti dude....

OH.fuck shit.....

Sticking Bilderbergers ,and Banksters.......in the head spots.

Fuck yous,CFR,and Trilateral Commission,and the fucking Dildobergers

FUCK YOUS....!!!!!!!!!!!!!!!!!!!!!!!!!!!

Sun, 11/13/2011 - 19:48 | 1874288 Hannibal
Hannibal's picture

Euro $1.3790 So much for the Euro is "dead".

Sun, 11/13/2011 - 19:56 | 1874301 Atomizer
Atomizer's picture

Tonight while eating dinner, I watched a regional city council listening to the taxpayer's concerns. After each presented their case, the city council of 12+ stated " all issues of taxpayer's cannot be addressed by our council replies."

Some think, dumbing down of America has been completed. Not being able to foresee the future, I often wonder how these folks will survive the new world. :>)

 

Sun, 11/13/2011 - 20:00 | 1874310 BetTheHouse
BetTheHouse's picture

Futures already green by nearly 100 points.

Sun, 11/13/2011 - 23:04 | 1874563 Dave Thomas
Dave Thomas's picture

More like 69.

 

Huhuh 69.

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