Overnight Sentiment: Europe Is Open

Tyler Durden's picture

For those who follow the overnight session and know very well that the only factor there is whether Europe is open or closed (like yesterday), we have three words: Europe was open. As BofA summarizes: "Yesterday's stronger than expected ISM manufacturing sparked a solid rally in the S&P 500. Around mid-day the index was up about 1.2%; however, the markets slowly faded throughout the rest of the day ending up 0.6%. Our equity strategy team things that the S&P is roughly at its fair value given the macroeconomic backdrop and the continued troubles in the Euro area." It is hardly rocket science that Europe will continue to drag on the world. The only question is how long before this nexus of global trade drags everyone else down, because as hard as they try the US and the BRICs simply can not pull away from the tractor beam of the European black hole.


More from BofA:

Market Action:

Overnight in Asia, equity markets followed the S&P 500 higher. The region's best performer was the Shanghai Composite up 1.8%. Rounding out the top three was the Hang Seng up 1.0% and the Korean Kospi finishing 0.9% higher. The Japanese Nikkei also enjoyed a rally up 0.3% while the Indian Sensex fell 0.1%.

The strong US ISM manufacturing index which is bullish for Europe as it provides a potential source of growth for the region is being offset by the regionally weak PMI reports that came out earlier today. In the aggregate European equities are up 0.2%. Meanwhile at home, futures are pointing to a slightly lower opening in the S&P 500.

In bondland, Treasuries are bid in the long end of the curve. Both the 10-year Treasury and long bond are 1bp richer at 1.94% and 3.13% respectively. European govies are mixed. The UK gilt and German bund are bid while the Italian and Spanish notes are selling off. Investors are in general the most worried about Spain where yield are hovering around 5.80%.

The dollar is enjoying a very solid rally. The DXY index is up 0.5%. That is putting downward pressure on commodity prices. WTI crude oil is down 43 cents to $105.73 and gold is off $8.66 an ounce to $1,653.68.

Overseas data wrap-up

May day holidays across the globe impacted the release of the manufacturing PMI reports which are normally released on the first of a new month. Today a majority of the PMI reports were released and the general tone is that manufacturing slowed in April. Out of the 24 countries reporting 18 showed reported a weaker PMI in April relative to March's level. Out of the 13 countries with PMIs in contraction territory 12 of those are in the Europe. Even the relatively healthy country of Germany reported a bigger contraction in its manufacturing sector. The country's PMI fell from 48.4 from 46.2 in the prior month. Overall, outside of the US manufacturing activity was very weak. Yesterday's US PMI manufacturing report surprised the markets sharply to the upside causing a 0.6% rally in the S&P 500.

The German economy lost momentum in April as unemployment in the country unexpectedly rose. In Germany, in April there were 19,000 more unemployed people than in March. That is an increase of 0.6%. The unemployment rate however remained unchanged at 6.8% where it has been since December. Consensus had actually expected a decline in the unemployment rate to 6.7%.

Investors need to keep an eye on a few overseas events occurring over this up coming weekend. In France, this Sunday is the final round of the Presidential election between Francois Hollande and Nicholas Sarkozy. Polls place Hollande in the lead.

Also this Sunday, Greek citizens go to the polls to elect a new parliament. Our FX Strategist Athanasios Vamvakidis wrote a report called Risks From The May 6 Elections discussing the upcoming elections and implications of the event. The base case scenario is that a weak coalition government is formed; however, there are tail risks that could cause market events for the Euro area.

Today's events

At 8:30 am, we expect the ADP measure of private employment to expand 165,000 in April after a 209,000 increase in March. Over the past few months, ADP has been outperforming relative to the BLS measure of private employment. Our ADP forecast compares to our private payroll forecast of 155,000.

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GeneMarchbanks's picture

'The only question is how long before this nexus of global trade drags everyone else down, because as hard as they try the US and the BRICs simply can not pull away from the tractor beam of the European black hole.'

There is only one black hole and it ain't Europe.

Ghordius's picture

LOL, Gene, you picked the low hanging fruit here. Remember the heady times when they said something like "if GM sneezes, America catches a cold"? LOL

tom a taxpayer's picture

Europe is open. Garcon, I'll have a croissant, an expresso, and some of that runnny cheese.

cossack55's picture

CPT. K : More power, Scotty!!!

S:   I'm giv'en her all she's got, Cpn!  Any more an' she'll blow!!!

HEHEHE's picture

Fair value?  The last time it was near these heights unemployment was 5% and we were in the middle of history's largest credit bubble.  Granted every Central Bank is running their printing presses but fair value?  Give me a freaking break.

BlackVoid's picture

This Europe bashing is truly ridiculous by now.

As if any other big economic hubs are in better shape. NOT.

Japan with Fukushima and its debt. US with its endless expensive wars, falsified economic data, etc. China and India are slowing.

I am in Europe and actually the situation is not so bad at all. I work for different companies and business in the last few years its quite good. The roads are packed with trucks and cars.

The crisis did cut the middle class by 5 to 20% (depending) on country, but thats it. Not yet ready for revolution.

The Europe crisis (as being the worst crisis flashpoint) mostly exists on the pages of the media. On the ground it is business as usual. People are not even worried, they got used to the crisis.

The whole world economy will go to shit, that is true. But not due to Europe. Banks, nations and big multinationals are too big to fail. THEY WILL BE BAILED OUT, no matter what.

Central Bankster's picture

I take it you're pretty new around here.  Nationalism (or multinationalism) is for fools.  Stop taking it personally, all Tyler is saying is that when European markets are open US index (futures) sell, and when Europe is closed they tend to rally.  It is at the point where it feels manipulated if you are short the US markets.  And so it is a comical piece about how "europe is open" and so it is safe to short US futures etc. because obviously things continue to worsen in all developed economies (it just happens to be Europe is in focus right now because that is where credit is acting the worst).  Also, you might want to temper that "they will be bailed out" attitude a bit.  GM was "bailed out" and if you invested in its bonds/equity you got wiped out, even though it was deemed too big too fail.  It is very likely (in my humble opinion) that most of the equity/debt holders in major European banks will be wiped out when the time comes for the too big too fail bail outs in Euroland.

Lednbrass's picture

If you and I are observe a bus full of people with radiator fluid leaking out, is it bus bashing to note that the engine is going to blow unless the root of the problem is fixed? If the only steps we can observe being taken to correct it is the occasional stop to pour more water in the radiator, is it bashing to think that sooner or later there is going to be a major problem? Or that one of those times when the cap is taken off its going to blow?

Zero Govt's picture

"..as hard as they try the US and the BRICs simply can not pull away from the tractor beam of the European black hole."

the black hole being Government and banking and its systemic destruction of (other peoples) wealth

KandiRaverHipster's picture

what kind of map is that?  the world is not flat.