Overnight Summary: Quiet Before The Printing Storm

Tyler Durden's picture


After opening on a very weak note, it was only expected that following some even weaker economic news overnight which continue to confirm the global turn into a sharp recession, futures are doing all they can to remain unchanged, and in some cases are even green as the traditional Pavlovian reaction kicks in: the worse the news, the likelier the intervention. Of course, the market's dogs are ignoring the fact that right now both gas (never higher on this US day in history) and food prices are surging and the central planners are quite aware of this, not to mention the US presidential election, although at this point nobody really believes that the Fed is impartial so that is a secondary consideration, even as actual fundamentals continue to deteriorate and the spread between cash-flow implied valuations and central bank set risk prices has never been wider. Which brings us to the overnight session, which is slowly picking up in activity but is nothing compared to what will be unleashed tomorrow early in the morning and continuing likely through the end of the year.

For that we go to DB's Jim Reid

Notwithstanding the improvement in yields in recent days, European leaders continue to put pressure on the ECB to act. Following talks with the Italian Prime Minister in Rome, French President Francois Hollande commented that it ”is the role of those institutions involved in the Eurozone to intervene, notably the European Central Bank”. This was backed by statements from Monti who said he expected EU measures to remove "the serious obstacle of (bond) spreads that have no underlying economic justification”. Indeed, the ECB’s own Jorg Asmussen described the current risk premia for sovereign bonds as reflecting “not only the risk of insolvency of a particular country, but also an exchange rate risk, which theoretically should not exist in a currency union. For a currency union, such systemic doubts are not acceptable”. So the pressure is certainly building in the lead up to tomorrow's ECB meeting.

Elsewhere, there were mixed messages regarding Greece. German finance minister Schauble and Dutch Prime Minister Mark Rutte both said that they would not agree to a third bailout package. The Dutch PM conceded that more time could be allowed for Greece "provided it doesn’t cost extra money”. However, there were stronger comments from Schauble; who was reported to have said in his meeting with his Greek counterpart that it is essential for Greece to fully carry out its obligations in order to receive further financial aid (WSJ). The Troika will submit its report on Greece in October, according to Schauble.

Moving back to markets, European equities were generally weaker (Stoxx Euro 600 -1.13%) following the manufacturing ISM print, although Spanish equities (+0.73%) notably outperformed. Weighing on sentiment was an article published in Germany’s Die Welt
suggesting that the ESM is illegal and violates EU treaties, which was in contrast to Schauble’s confidence in the legality of the ESM expressed the previous day. Meanwhile, across the pond, the S&P500 closed down -0.12%, but recovered from intraday lows following a late rally in technology stocks including Apple on expectations that the company will introduce its next-generation smartphone on Sept 12th.

In overnight markets, Asian equities are trading in the red as we type, with the Hang Seng (- 1.1%) and Nikkei (-0.8%) both lower. China’s Securities Times is reporting that industrial output growth may slow to 10% in 2012 from 13.9% in 2011 citing a report released by the Chinese government. Fitch published a bearish report suggesting that the credit quality of Chinese banks will deteriorate in 2H 2012 with declining asset quality and corporate profitability weighing on earnings. Partially offsetting the weaker sentiment, Bloomberg is reporting that China is considering increasing exporter’s tax rebates to 17% (from 13-15%) in order to help companies cope with a slump in trade growth. Finally, China’s HSBC Services PMI printed at 52.0 (vs 53.1 in prior month).

Looking at the day ahead, the focus will be on Eurozone services PMIs and retail sales. On the latter, the market is expecting a 0.2% mom decline. Spanish PM Rajoy will travel to Berlin to hold talks with Merkel. The Bank of Canada will announce its rate decision today, while in the US the main data points will be the Q2 nonfarm productivity print and unit labor costs.

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Wed, 09/05/2012 - 07:11 | 2763769 markmotive
Wed, 09/05/2012 - 07:13 | 2763773 Rubicon
Rubicon's picture

Chuck Norris is a hypocrite...



Wed, 09/05/2012 - 07:30 | 2763798 LongSoupLine
LongSoupLine's picture

Chuck saw your post...he's coming.

Wed, 09/05/2012 - 07:38 | 2763814 Mr_Wonderful
Mr_Wonderful's picture

Let us join in fifteen seconds of silence in memory of our dear and departed friend Rubicon ...

Wed, 09/05/2012 - 07:43 | 2763827 GetZeeGold
GetZeeGold's picture



Let us prey.


Wed, 09/05/2012 - 07:55 | 2763857 HoofHearted
HoofHearted's picture

BTFD, bitchez. You heard what Tyler had to say. Green shoots all over everyone tomorrow. BTFD. I did three weeks ago when silver was at 27. I don't let anyone shoot anything all over me. (Although maybe some of you are into that kind of stuff....)

Wed, 09/05/2012 - 07:43 | 2763830 Rubicon
Wed, 09/05/2012 - 07:46 | 2763837 Mr_Wonderful
Mr_Wonderful's picture

How bloody corny

"At WBK bank everyone can be like Chuck Norris"
Wed, 09/05/2012 - 07:49 | 2763844 Rubicon
Rubicon's picture

Spoken like a true Socialist!

Wed, 09/05/2012 - 08:00 | 2763860 GetZeeGold
GetZeeGold's picture



Ummm.....I see what you're doing. Socialism sucks......just give me that old time Marxism anytime.


Wed, 09/05/2012 - 07:46 | 2763835 Rubicon
Wed, 09/05/2012 - 08:01 | 2763875 GetZeeGold
GetZeeGold's picture



He's a professional......don't try it at home.


Wed, 09/05/2012 - 08:23 | 2763912 QuietCorday
QuietCorday's picture

A lot of people don't seem to know about the hyperinflation in Austria after the first world war. The Austrian crisis is far more illuminating, particularly when you consider the US and the dollar as a reserve currency, because the Austrian hyperinflation was not caused by printing, but by the repatriation of the Austro-Hungarian Krone back to Austria from all over the former empire.

It is quite an interesting thought exercise to consider what may happen if excess expansion causes reserve status loss and the currency then begins to repatriate AND the PTB still continue to print. That would be *hyperinflation on PCP* -- the dollar would be dead in a matter of weeks.

Wed, 09/05/2012 - 07:31 | 2763800 Mr_Wonderful
Mr_Wonderful's picture
Faceplant Announces Massive $2 Billion Share Buyback At Less Than Half Of The IPO Price*


Wed, 09/05/2012 - 07:53 | 2763855 HoofHearted
HoofHearted's picture

Let me sell you these dollars at a dollar apiece. Next week, I'll pay you 50 cents for them. You're welcome.


Wed, 09/05/2012 - 07:57 | 2763861 AynRandFan
AynRandFan's picture

"German finance minister Schauble and Dutch Prime Minister Mark Rutte both said that they would not agree to a third bailout package."

Put that in the category with: "I'll never drink again."

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f16hoser's picture

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Wed, 09/05/2012 - 08:46 | 2764014 ClassicCommodity
ClassicCommodity's picture

What can I say, i'm a very traditional man.

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