A Look At The Key European Auctions, Pardon Global Events, In The Coming Week

Tyler Durden's picture

Goldman's one stop summary of the past week and the week that comes.

The Week in Review

The past few days have been notable for the Euro zone crisis, which so far has engulfed mainly periphery countries, spreading to Germany – the core of the core – where a weak bond auction sent 10-year Bund yields 30 bps higher on the week (Figure 1). That said, the periphery also suffered, with Italian and Spanish 10-year yields closing the week at 7.3% and 6.7%, respectively. The sell-off there gathered pace after a meeting between Chancellor Merkel, President Sarkozy, and Prime Minister Monti on Thursday, which poured cold water on Germany embracing a greater role for the ECB in fighting the crisis and put the emphasis ahead on Treaty changes to improve fiscal surveillance and – in the case of persistent violators of budget targets – measures to discipline countries. Proposals for a Treaty change are being worked on in the run-up to the Dec. 9 EU summit, and a working dinner for EU leaders has been scheduled for Dec. 8 to discuss these.

With press reports (Reuters, Dow Jones) that Greece is seeking even greater haircuts from private bond holders, reports of disagreement among Euro zone governments over private sector involvement in the ESM, and S&P cutting the credit rating for Belgium, EUR/$ ended the week at 1.3240, down almost three big figures for the week and close to its lows in early October. However, our broad trade-weighted EUR index was down only 0.2% on the week. As such, the EUR/USD drop was very much in line with the sell-off in other high-beta FX and does not point to significant EUR underperformance. The stand-out trend for the week was USD strength, ironic given that the Super Committee failed to reach agreement on deficit reduction, with our trade-weighted USD index rising 1.8%. We see this rise very much as a symptom of risk reduction rather than genuine USD strength. The September TIC data illustrate this (Table 1), showing that – outside of foreign flows into US Treasuries (Column A), a symptom of risk reduction – private (i.e., non-official) foreign flows into US assets remain very weak (Column K), leaving the private basic balance (Column L) in very negative territory. This supports our continued view for broad USD weakness ahead, which drives our medium- and longer-term FX forecasts.

Looking at individual currencies, the worst FX performers this past week were BRL against USD (down 5.6%), followed by ZAR (down 4%) and MXN (down 3.5%), indicating that the overriding theme was once again cyclical currencies selling off (Figure 2). At the same time, a key theme that we have been emphasizing – weakness in CE-3 currencies on the back of weakening Euro zone growth and mounting bank funding issues – returned to the fore, with CZK weakening 2.3% against EUR, PLN down 2.6%, and HUF – weighed on by a rating downgrade of Hungary by Moody's – weaker by 3.3% against EUR. Last Sunday's weekly idea short $/JPY, was motivated by the view that risk aversion would indeed increase this week, but JPY failed to benefit, leaving our idea 1.2% in the red.

Source: Bloomberg

Source: Bloomberg


Source: Haver Analytics

The Week Ahead

The week ahead brings key cyclical data in the form of the global PMIs and the all-important non-farm payrolls report for the US. For China's official PMI we are looking for a flat reading, while consensus is looking for slight moderation below the 50 threshold. Our forecasts for both the ISM and non-farm payrolls are below consensus, though – given the volatility of both numbers – not significantly so. The week brings central bank meetings in Hungary, Israel, the Philippines, and Thailand.

In terms of FX, with European bank funding stress continuing to become more acute – EUR/$ 3-month cross-currency basis has now moved out to 146 bps (Figure 3) – heavy bond issuance by the likes of Belgium, Italy, Spain, and France this week, and Euro zone growth weakening sharply, we think CE-3 FX will remain under pressure. We maintain our tactical recommendation to be long RUB/HUF with a target of 8.00. Our Sunday trade idea for the upcoming week is to be long EUR/CZK. Although CZK has less exposure to rollover risk than its CE-3 neighbors (see here), it has a large export exposure to Western Europe and has sold off relatively less than its peers.

Source: Bloomberg

Monday 28 November

  • Israel Central Bank Meeting: Consensus is looking for a 25 bps hike from 2.75% to 3.00%.
  • Belgium and Italy Bond Auctions
  • United States New Home Sales (Oct): We forecast a flat reading, above consensus

Tuesday 29 November

  • Italy Bond Auction
  • Hungary Central Bank Meeting: Consensus is looking for a 25 bps hike to 6.25% from 6.00% currently.
  • United States S&P/Case Shiller Home Price Index (Sep): We forecast a rise of 0.2% mom, above consensus of 0.1% mom.
  • Eurogroup/Ecofin Meeting: European finance minsters will meet on Tuesday and Wednesday to debate changes to the EFSF, including plans to increase the leverage of the EFSF.

Wednesday 30 November

  • India GDP (Q3): We expect GDP growth for 2QFY12 to come in at 6.8% yoy, in line with consensus, on account of a normal monsoon but poor industry and services sector growth. All coincident indicators of growth are suggesting a slowdown. For FY12, we are expecting GDP to grow at 7.0%.
  • Korea Industrial Production (Oct): We expect industrial production to slow down further in October on weak global growth momentum. Consensus expects industrial production to slow to 5.1% yoy from 6.8% yoy in September.
  • Thailand Central Bank Meeting: Consensus expects a 50 bps cut to 3.00%.
  • United States Chicago PMI (Nov): We are looking for a reading of 56.0 versus consensus of 58.5 and an October reading of 58.4.

Thursday 1 December

  • Global PMIs (Nov): We expect the official PMI for China to be flat versus consensus, which is looking for slight moderation to 49.8 from 50.4 in October. There is no strong seasonal bias this month in our experience. Underlying sequential activity growth probably was largely unchanged as a result of the offsetting forces of stronger domestic demand growth and slowing exports growth. Euro zone PMIs have been released in their preliminary form last week and showed continued weakness in manufacturing but surprising strength in services.
  • Korea CPI (Nov): November CPI is expected to rebound to above 4% yoy due to a strong base effect. However, the scheduled revision of CPI baskets could reduce the level of inflation retroactively. Consensus is looking for a reading of 4.4% yoy, up from 3.9% yoy in October.
  • Indonesia CPI (Nov): We expect further moderation in inflation to 4.1% yoy from 4.42% yoy in October.
  • Philippines Central Bank Meeting: We expect Bangko Sentral ng Pilipinas to keep the policy rate on hold in the next policy meeting, consistent with the Bloomberg consensus forecast.

France and Spain Bond Auctions

  • United States ISM (Nov): Regional surveys sent mixed signals on the state of manufacturing activity in November. We expect the ISM manufacturing index to remain broadly unchanged. Consensus is looking for a reading of 51.5, up slightly from 50.8 in October.

Friday 2 December

  • United States Non-Farm Payrolls (Nov): We forecast that non-farm payroll employment rose by 100,000 in November, relative to consensus of 120,000. The slight pickup from a gain of 80,000 in October mainly reflects the continued decline in initial unemployment claims

And from Zero Hedge, here again is the breakdown of the key European bond auctions through the end of the year. Italy has two in the next two days. Good luck.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
SWRichmond's picture
A Look At The Key European Auctions, Pardon Global Events, In The Coming Week

Just so you don't call them "credit events."

smlbizman's picture

breaking news.......susan li is so fucking hot tonight.....

Justinx34's picture

I wonder if since we are loaning out more of our "USA money" to other nations then they pay us interest correct?

meaning we give to IMF - IMF loans out to Italy - Italy pays loans (hehe) and IMF gets interest - IMF redistributes interest back to USA


rocker's picture

Somewhat correct. I still believe that they take the market on whatever direction on news they tell the MSM to say. Playing the opposite of money flow.

What I don't get. If most people went short on Friday and it is Crash and burn for them. Would not just as many went short Gold.

So why is Gold up. The way it worked before was that bad news was good on a QE thought. Now good news is good news. Don't buy it.

I think it is all bad either way. Americans in general are Fucked. The 1970's inflation is already here. More Credit.  Please!!!

Justinx34's picture

I was born in 1979 so I dont know what the 70s were like but if its only as bad as the 70s I can handle that - I just figure it will be much much worse.... dont you?

LawsofPhysics's picture

The 70's was only bad because of turmoil in the oil markets, particularly the oil embargo.  World oil production could still increase, as did wages (adding to the inflation problem in the 70's).  In today's case, world wide oil production has FLATLINED, you also have a 704 TRILLION dollar derivatives market set to implode, AND the capital and energy cost for generating energy across the the board is no longer profitable because the purchasing power of all fiat and WAGES have declined across the board.  Inflation in the 70's was brought under control because the U.S.A. still had a realitively low debt burden and there was room to raise interest rates and still service the debt.

THAT IS NOT POSSIBLE  now thanks to the Bernake and his zero interest rate policy, now extended indefinately.  The U.S.A. is Japan 2.0.

Look, there is a very real cost for creating capital out of thin air, especially if that capital does not go into real innovation and things of physical value.  Since 2001, that capital has been gambled away in pointless wars and "financial products" and "financial engineering" (i.e. cooking the books by financial fucknuts to keep the billion dollar bonuses coming), the absolute worst case scenario.

The 70's will look great compared to the capital controls, bank runs, and rationing that is coming. Hedge accordingly (cash, physical assets of all flavors, but particularly those that also generate revenues).  The big boys, folks with hundred million dollar incomes are about to start fighting each other, you don't want to be caught in the middle of this throw-down.

SwingForce's picture

"The Creature From Jekyll Island", by G. Edward Griffin  (Top Right, click DOWNLOAD and then Download Anyway):


He's still alive, and writes a newsletter: http://www.realityzone.com/currentperiod.html

American34's picture

Monkeys to the rescue! If we get enough monkeys and enough typewriters in the same room they will come up with a solution to the European SPENDING crisis!

Justinx34's picture

there is more then enuf monkeys on this page already!!  check it out


American34's picture

Yes Sir Mr. Monkey Butler

Boilermaker's picture

I need to lay down with a cool wet rag on my forehead and watch the futures go up.  This is just too much for me.

The Chiefs QB is absolutely terrible too!  Man, that Palko guy sucks eggs.

SWRichmond's picture

what was that, two or three interceptions in a row?

Boilermaker's picture

Two but, give him time, he'll get that third one for you.

caerus's picture

he's no tim tebow...lol

Boilermaker's picture

I was sure there wasn't anyone worse than Curtis Painter for the Colts...errr...I might have been wrong.

rocker's picture

Stay in Cash. Buy nothing. This is the biggest joke on honest Americans ever.

Another phony exercise on screwing Americans out of money being handed to another nation.

We build roads and bridges in Iraq and let Americans ride into rivers in America.

We rebuild Banks owned by the Goldman Sach's banking Cartel and the Fed bails them out.

Yet America is now: Worse than Japan Now.  Zhombie banks and Markets coming to you real soon.

Justinx34's picture

I hear ya,  Japan is more expensive to live in by far though

I wonder if since we are loaning out more of our "USA money" to other nations then they pay us interest correct?

meaning we give to IMF - IMF loans out to Italy - Italy pays loans (hehe) and IMF gets interest - IMF redistributes interest back to USA


FlyPaper's picture


RE: Stay in Cash...    Sound advice as long as your bank doesn't go belly-up.

1)  FDIC:  At $7.8 billion...  FDIC Fund is nowhere close to be able to cope with a problem with one of the TBTF banks.  "DIF Balance Continues Positive (FDIC Quarterly Banking Profile, November 22, 2011) The condition of the Deposit Insurance Fund (DIF) continues to improve. The DIF increased by $3.9 billion during third quarter 2011 to $7.8 billion (unaudited)"

2)  FDIC:  Borrowed $ from the Treasury during the S&L crisis in the 1980s.  Congress extended this to $100b and up to $500b, but the latter was only thru 2010.  So Congressional action is required to loan money to the FDIC.

3)  BoA is in trouble.  Under the new rules the FDIC can step in and run BoA (think cronyism is bad now, just wait until the politicos get their hands on a big bank).   A BoA hiccup would wipe out the FDIC's fund in a heartbeat.


UPSHOT:  I'd spread your funds around to multiple institutions, including high-quality Credit Unions.  BankRate.com has reviews on banks; good place to start to see if your bank is in good or bad shape.


Carlyle Groupie's picture

Suggestion; suspend euromeltdown until after American consumer binge. It's like mixing pickles and strawberry ice cream.

disabledvet's picture

Awww. That's cool. They referenced Zero Hedge! And issued something "even a caveman could understand." Like me! Well, I'm more like the caveman's dog...but hey, "we're tight, bro. real tight."

Fred Hayek's picture

Wow. So many items for Ben Bernanke to take care of. But, I'm sure he's up to the task of destroying the livelihoods of private citizens to protect the too big to jail banks.

To repeat the old quote from Kissinger about politicians acting in a crisis, “The illegal things we do right away, the unconstitutional take a bit longer.”

disabledvet's picture

i prefer Clint Eastwood: "a man's gotta know his limitations."

rocker's picture

Stock Market going up on IMF bailout for Goldman Sachs, JPMorgan, Citigroup, BAC, Morgan Stanley Bailout.

Americans Will Bailout Goldman Sachs and JP Morgan so Lloyd Blankfien and Jamie Diamon receive their Millions of Dollars Bonus.

The FED will make it so, as before taxpayers are going to bail them out while the taxpayers get austerity bailunder.  

LOL on Americans sorry Banking Cartel bought and paid for by the Banksters. It is a Supreme Court Mandate.

NSEW_73's picture

So if Italy's taken care of by the IMF, who's gonna take care of Spain? Belgium? Greece? Hungary? Slovenia? and dare I say France? They get a hole plugged up and a leak starts elsewhere.

Boilermaker's picture

That's for next month.  Right now, they're just trying to get through tomorrow.  More the point thought....who is going to save the USA?

It's just pathetic now.

rocker's picture

You need to reference the 70's to reflect what the FED is doing.

Americans will not make money in the Stock Market and Inflation will eat savings.

The only rich Bastards will be Goldman Sachs and JPMorgan getting their Bond holdings in Europe Bailed Out.

jcaz's picture

Don't leave out the UK.....  Oh, and Germany, after they absorb the hits........

No one is safe when the music stops.

Roy T's picture

Greece is already fixed.  Didn't you notice when Merkel/Saroky told the world that they have a plan for a plan for that situation?

So that is done, and as Paterno told the Board of Trustees before he was canned, I don't want you think about it for even a minute.




Smithovsky's picture

What time of day do the auctions usually take place?  

AC_Doctor's picture

Let the Fed buy some futures contracts to ramp up the market until the Belgium and Italian Bond auctions go tits up and their bond interest rates soar like an eagle in an updraft.  Reality will bring all the hop (ium) heads back down on a bad high...

Boilermaker's picture

Even CNBC is saying the Italy / IMF report is 'misleading'....WTF?


bnbdnb's picture

Quick EUR drop, why?

homer8043's picture

Ok, what just happened? ES falling off a cliff.

Caviar Emptor's picture


Financial press: There is no discussion within the G7 for large IMF package for Italy $$

bnbdnb's picture

LMFAO. I'm sexy and I know it.

Boilermaker's picture

Just a glitch in the software.  They've installed the patch now.  We'll be back to 25 handles in no time.  Sorry for the inconvienence.

bnbdnb's picture

If it breaks 1.3275 its going to go back to lower than Fridays close. Unbelievable.

Caviar Emptor's picture

REVEALED: More Details On The Fed's Breathtaking $7.7 Trillion In Loans To Large Banks

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.


Teamtc321's picture

REVEALED: More Details On The Fed's Breathtaking $7.7 Trillion In Loans To Large Banks

Read more: http://www.businessinsider.com/bank-bailouts-2011-11-27#ixzz1ey5LUT5s

Georgesblog's picture

It still looks like financial storm clouds building in Europe. The possibility of the Fed getting involved in tossing in a 600B life preserver should make everyone in the U. S., very uncomfortable. It's a wait and watch week.