The new year is not even a week old and already the volatility fireworks are off, as well as the continued commodity derisking. But while for now US stocks continue to be an island oasis in a turbulent global sea where GDP forecasts decline every single day, the same can not be said about either the Euro, which after crashing overnight to a 9 year low, and rebounding briefly, has continued to decline and is now once again flirting with a key support level, this time 1.19, last reached during the May 2010 first Greek bailout. The catalyst, as usual, Greece which may or may not be leaving the Eurozone shortly, as well as ongoing bets on ECB QE following this morning's regional German inflation data which declined once more and now hints at outright deflation in Europe's strongest nation.
In any event, below 1.19 the freefall begins in earnest. As for Draghi's outright monetization of debt, even the FT now reports that "Economists sceptical ECB bond-buying would revive eurozone [27]."
Speaking of freefall, things continue from bad to worse for Brent and WTI, which are both down 2% to fresh 5 years lows at last check, and Brent just hit $55 for the first time since May 2009. That this it taking place despite news that hours ago Saudi security personnel killed an alleged Jihadist gunman who blew himself up after being encircled near border post, shows just how substantial the downside momentum has become.
Meanwhile as the "developed" world is obsessing with Greece and Europe, where it "suddenly" realizes nothing has been fixed at all, China continues its relentless surge higher now that all chronic gamblers have left from Macau and rented out the UBS SHCOMP trading desk in Stamford, and as a result the Shanghai Composite Index surged once more, rising a whopping 3.6% to 3,350 in afternoon trading, led by industrials: the highest level since 2009. That this happens as copper falls for a third consecutive day, heading for its lowest closing price in more than 4 yrs, with NY copper down more than 1% to $2.7885 suggests that what a year ago was Chinese Bitcoin mania is now clearly raging in the stock market.
In Summary: European shares fall close to intraday lows with the oil & gas and basic resources sectors underperforming and health care, travel & leisure outperforming. Euro trades close to 9-year low against the dollar, crude oil falls to lowest since 2009. German govt spokesman says Germany wants to keep euro area together with Greece. The Italian and Spanish markets are the worst-performing larger bourses, the Swiss the best. German 10yr bond yields rise; Spanish yields increase. Commodities decline, with Brent crude, WTI crude underperforming and natural gas outperforming. U.S. ISM New York, vehicle sales, RBC consumer outlook due later.
Market Wrap
- S&P 500 futures down 0.2% to 2041.9
- Stoxx 600 down 0.3% to 340.2
- US 10Yr yield up 2bps to 2.13%
- German 10Yr yield up 2bps to 0.52%
- MSCI Asia Pacific down 0.8% to 136.9
- Gold spot up 0.1% to $1190.5/oz
- Euro down 0.71% to $1.1917
- Dollar Index up 0.59% to 91.62
- Italian 10Yr yield up 5bps to 1.79%
- Spanish 10Yr yield up 6bps to 1.56%
- French 10Yr yield up 2bps to 0.8%
- S&P GSCI Index down 0.6% to 412.3
- Brent Futures down 1.8% to $55.4/bbl, WTI Futures down 1.7% to $51.8/bbl
- LME 3m Copper down 1.1% to $6183.3/MT
- LME 3m Nickel down 0% to $14827/MT
- Wheat futures up 1.3% to 588.8 USd/bu
Fixed Income/ Equity market summary
Over the weekend European press paid attention to Draghi’s remarks in the Handelsblatt on Friday that the ECB was preparing “to alter the size, speed and composition of our measures at the beginning of 2015”. Dovish overtones were also seen from ECB’s Praet who acknowledged there is now an increased risk that the euro area could see “negative inflation during a substantial part of 2015”. Also dampening sentiment, according to unidentified sources German Chancellor Merkel’s administration sees a potential Greek exit from the Euro Area as manageable and the situation would be almost unavoidable if a Syrizan government failed to service Greece’s debt. Latest opinion polls suggest the Syriza party led the ruling conservatives by 3.1ppts, a slight narrowing from a 3.4 point lead in a previous poll last month. The GE/GR 10y bond spread is wider by 19.2bps and the Greek 10yr bond yield at 9.21%.
Both stories helped Bunds open near Friday’s highs and equities near Friday’s lows. However in thin liquidity as European traders slowly return to trade Bunds (-27 ticks) edged lower throughout the morning retracing the previous session’s gains on no new fundamental news, even given the backdrop of a fall in German state CPI’s. Equities have seen quite a large range on low volumes but trade lower across the board with the Eurostoxx50 -0.8%.
FX
During the Asian session EUR/USD took out USD 1bln of stops through 1.2000 taking it to a low of 1.1864 (lowest since March 2006) as expectations of further stimulus in the Eurozone continues to grow from recent ECB Draghi comments. This in turn has benefited the USD (+0.17%) which is now at its highest level since 2005, on safe haven flows, EUR weakness and monetary policy divergence, which is weighing on the major pairs. Of note, sources report that USD/JPY currently trades in close proximity to a large option expiry of USD 1.9bln at 120.50 which rolls off at the NYC cut.
Commodities
Precious metals have seen their earlier upside gains capped as the strong USD (+0.17%) has weigh on precious and base metals. The strong USD has also kept WTI (-0.88) in negative territory now trading near 5 and a half year lows. However, Nat Gas (+3.6%) continues to reside in positive territory after bad weather in the Midwest and East coast of the US.
Bulletin headline summary from Bloomberg and RanSquawk
- USD, the reserve currency of choice, continues to trend higher now at its best levels since 2005
- Grexit fears continue to linger as German sources suggest a Greek exit would be manageable and unavoidable under a Syrizan Govt.
- Treasuries fall, led by 2Y and 3Y notes, to begin the first full week of 2015; minutes of Fed’s Dec. meeting and EU inflation data due Wednesday, with nonfarm payrolls scheduled for Friday.
- Greece’s political parties embarked on a flash campaign for elections in less than three weeks that Prime Minister Samaras said will determine the fate of the country’s membership in the euro currency area
- Germany’s Merkel and FinMin Schaeuble consider a Greek exit from the euro area to be manageable because of progress made since height of sovereign debt crisis in 2012, Der Spiegel reports in e-mailed summary an article, citing unidentified people close to govt
- Merkel’s government continues to support Greece as part of stabilizing euro area, government spokesman Steffen Seibert says in Berlin; Germany hasn’t changed its policy on Greece in the euro area, Seibert says
- Euro zone consumer prices probably fell 0.1% in Dec., according to the median estimate in a Bloomberg survey; the data, due Jan. 7, may tip scales in favor of sovereign QE when Draghi leads a ECB meeting later this month
- Oil fell for a third day, extending its drop from the lowest close since 2009, as record supplies from Iraq and Russia bolstered speculation that a global glut that drove crude into a bear market will persist
- The world’s biggest economies will need to refinance about $6.96t of bills, notes and bonds this year, 6.3% less than last year, as austerity measures help shrink budget deficits
- Nearly $1.4t IG priced last year, $305b high yield. BofAML Corporate Master Index OAS at 145, opened 2014 at 127; year range 151/106. High Yield Master II OAS at 508, opened 2014 at 400; year range 571/335
- Sovereign yields mostly higher. Asian and European stocks mostly lower; Shanghai +3.6%. U.S. equity-index futures decline. Brent crude, WTI and copper fall; gold gains
- Looking ahead the calendar is light with Fed’s Williams and German CPI due at 1300GMT
US Event Calendar
- 7:30am: RBC Consumer Outlook Index, Jan. (prior 53.3)
- 9:45am: ISM New York, Dec. (prior 62.4)
- Wards Domestic Vehicle Sales, Dec., est. 13.70m (prior 13.78m); Wards Total Vehicle Sales, Dec., est. 16.90m (prior 17.08m)

