Overnight Sentiment: Same Old Same Old

Tyler Durden's picture

If anyone still actually cares, or trades, we just saw the third California muni bankruptcy in two weeks, German bonds priced at record low yields, and Spanish 2 year nominal yields just hit all time lows of -0.37%. Abroad Spain promised to crush its middle class even more by impairing retail held sub debt and hybrids, while forcing them to pay more taxes, a move which will lead to some spectacular Syntagma Square riotcam moments, yet which has sent Spanish bonds slightly higher. As for US equity futures, they continue the headless chicken dance higher even as company after company now rushes to preannounce horrifying Q2 earnings. And that's it in a nutshell.

More from BofA:

Market action

Asian equity markets finished mixed. The Shanghai Composite rose 0.5% and the Hang Seng closed 0.2% higher. On the flip side, the Japanese Nikkei lost 0.1%, the Korean Kospi fell 0.2% and the Indian Sensex shed 0.7%. 

For the fifth time in six days, European equities are selling off. Today, investors are worried that the slowing global economy will hurt company's earnings. In the aggregate, European equities are 0.3% lower. At home, futures are pointing to a 0.2% increase in the S&P 500 later today as the market bounces back from yesterday's 0.8% sell off. 

Treasuries are backing up modestly in the longer part of the curve after rallying yesterday. Both the 10-year Treasury and the long bond are 1bp higher at 1.51% and 2.63% respectively. In Europe, borrowing costs for Spain and Italy are falling. The 10-year yields for both countries' are down 5bp to 6.68% and 5.87% respectively. 

The dollar is weakening with the DXY index off 0.2%. Commodities are higher with WTI crude oil up 73 cents to $84.66 a barrel and gold trading $7.93 higher an ounce at $1,575.20. 

Today's events:

Trade: The trade deficit is likely to narrow to $48bn in May from $50.1bn in April. The reduction in the deficit is largely a price story, reflecting the sharp drop in commodity prices. This will reduce the nominal amount of petroleum imports, helping to shrink the deficit. Elsewhere, we think that exports should remain soft due to the continued slowdown global growth. This will offset part of the collapse in imports. After adjusting for inflation, we believe that the real goods balance, which is the main input into our GDP tracking model, should be little changed. 

Wholesale inventories: Consensus expectations are for wholesale inventories to rise by 0.3% mom in May. That would follow the 0.6% increase recorded in the prior month.

Consensus starting to see the cliffs

The latest Blue Chip report - a leading provider of consensus estimates of economic forecast - was just released; we are beginning to see evidence of the fiscal cliff work its way into consensus expectations. In a special question Blue Chip asked about the looming fiscal cliff.

Here's what Blue Chip recorded: 

  • Almost 89% of the panelists believe uncertainty associated with the scheduled expiration of the 2001 and 2003 tax cuts at the end of 2012 will dampen consumer spending and business investment, and thus GDP growth, in the second half of this year. About 54% said the impact would be "small", but 39% expect a "moderate" impact. Asked when there will be some clarity about whether or not the tax cuts will be partially or totally extended, about 65% of the panelists said after the November elections, but before the end of this year. However, about 30% said not until after the end of this year. About 39% of the panelists say they assume total extension of the 2001 and 2003 tax cuts, while almost 59% anticipate only a partial extension. 

While 88.6% of respondents see uncertainty from the fiscal cliff depressing H2 2012 growth, only 4.3% expect a "large" impact from uncertainty. Quarterly growth rate forecasts are now a tenth or two lower than in June but growth still accelerates into the fourth quarter according to consensus expectations (2.3% now vs. 2.4% forecast in June) then dips briefly in Q1 (1.9% now vs. 2.1% in June) before rebounding. The bears continue to take down their forecast. It is interesting to note that the bottom 10% of forecasters now see growth averaging 1.5% in the third and fourth quarter of this year, then 0.7% for Q1 2013 before rebounding back to 1.5% for Q2. So our 1.0% in Q4 is no longer the bottom of the pack, although our overall trajectory is still below our fellow bears.