Overnight Sentiment: Greek Euphoria

After starting the overnight trading at its lows, the EURUSD has once again seen the now traditional overnight levitation, this time with absolutely no economic news, in the process raising equity futures across the Atlantic, even as unfounded Chinese optimism for more liquidity has waned leading to the SHCOMP closing down 0.3%. Perhaps the most notable event in the quiet trading session so far has been the surge in 10 year Greek debt whose yield has tumbled to post-restructuring lows, driven by more and more hedge funds piling in to piggyback on Dan Loeb's recent public GGB purchase announcement (strength into which he has long since sold), and hopes that Greece will somehow see an Official Sector Initiative (OSI) to make recovery prospects for Private Investors more attractive: a capital impairment the ECB has said would happen only over its dead body. But in the new normal, facts and rules are for chumps, and only exist to be broken. More on this amusing stupidity here. Amusingly, this comes just as Greece’s Staikouras says the economy’s downward spiral is not over yet. But, again, who cares about fundamentals.

In other news, U.K. house prices rose 3.5 percent in October on average from the previous month to 243,168 pounds ($390,431), said Rightmove. Asking prices for homes in London surged 4.8 percent to a record 478,071 pounds, as values in the borough of Kensington and Chelsea rose 9.1 percent to an average 2.2 million pounds, all driven entirely by continuing money laundering of other European and petrodollar money in UK real estate, as is the case in NY. Elsewhere, Czech producer prices increased 1.7
percent annually in September, after gaining 1.9 percent the prior month. Economists forecast a 2 percent increase.  Turkey’s unemployment rate rose to 8.4 percent in July from 8 percent in June: perhaps it is time to hire more reservists for that inevitable confrontation with the southern neighbor.

Some FX technicals from SocGen:

EUR/USD 1.2891-1.2962 overnight range. Minor setback in Asia as spot reverses three days of gains. US retail sales and Empire survey will be key for sentiment today. Key support level unchanged from last week around 1.2825, the 200d ma.
USD/JPY 78.27-78.62 overnight range. Rally continues for a fifth successive day as spot rises above 78.60. Last week's statement by Maehara leaves an impression even though the UST/JGB 2y spread has not moved (15bp). Resistance 78.76.
GBP/USD 1.6021-1.6083 overnight range. Still flirting with 1.60 as bullish momentum faded on Friday close to 1.61. Support 1.60 and 1.5957/77 below. Rightmove house prices up 3.5% in Oct. PPI/CPI data due tomorrow, employment Wednesday.
AUD/USD 1.0202-1.0270 overnight range. Struggling to recovere after dovish RBA's Stevens comments at the end of last week. A close above 1.0272 is required to stem selling pressure short-term. Watch US stocks, retail sales today.

What to look forward to:

Friday's report of a five-year high for the Michigan consumer confidence survey hardly registered in currencies, but caused volatility to slip back towards the September lows. EUR/USD vol is flirting with all-time lows and USD/JPY has hardly budged, following the jawboning by government officials to weaken the yen. Conviction levels on the whole are low, and though positioning favours a small risk-on move, it is unclear what will break the deadlock. It was pointed out to us that the Dow has not had a down day of 1% (or more) since late June, a sequence that will lead the Fed to draw some comfort that its policies are working. High frequency data are flashing a decent end to Q3 and one must hope that confidence will spill over to Q4. The stronger consumer barometer will hopefully also be translated into solid retail sales data this afternoon. For the EU, the Council summit later this week will be key, but as is usually the case with these summits, it is doubtful that significant progress will be made. Topics ranging from deeper fiscal integration to a banking union will be discussed, but one must hope that the talks will not be hijacked by the situation in Greece or Spain. The IMF pressed the EU last week to give Greece more time to meet its deficit goals, but with the hostility towards more lenient terms high in AAA member countries, there could be some controversy if no common position is found to keep Greece from running out of cash. There was talk of progress on Friday, which is encouraging, but there is a history of talks breaking off. How discussions over Spain and Greece evolve will be particularly relevant for the EUR, in a week that sees heavy debt supply from Spain on Thursday, but also Germany and France. Italy will make roughly EUR18.3bn in bond payments starting today.

And a comprehensive summary from Deutsche Bank:

Turning to markets Asian equities are generally lower overnight as we type. Sentiment is seemingly affected by further drop in Chinese producer prices but in reality the negative US lead from Friday is also not helping. Chinese PPI came largely in line with expectations (-3.6% v -3.5% yoy) but also marked the seventh consecutive month of declines. Chinese CPI (-1.9% yoy) came in line with market consensus. All eyes will be on the China’s Q3 GDP report on Thursday along with the rest of the monthly data dump (FAI, IP and retail sales). Markets wise, the Shanghai Composite (-0.5%) is also not helped by some weaker earnings report overnight. Elsewhere in the region the Hang Seng and the KOSPI are down -0.1% and -0.4$ respectively. Credit spreads are little changed with new issues still the main theme in Asia. Copper (-0.3%) and Brent (-0.5%) are softer overnight.

Despite the weaker market sentiment overnight, China’s latest trade figures over the weekend were actually better-than-expected. Export growth (+9.9% yoy) in September was twice as much as market estimates (+5.5%) and also up sharply from August (+2.7%). By destination, exports to EU were down -11% yoy, but exports to the US and ASEAN were up 5.5% and 25% yoy, respectively. Imports growth (+2.4% yoy) in September were in line with market. All in all this leaves trade surplus for the month at $27.67bn versus the $20.54bn expected by the market. Jun Ma notes that the export recovery has helped limit the downside risk to the IP report on Thursday. New RMB loans in September were weak and moderately below consensus (RMB623bn vs RMB700bn) though. Jun Ma sees the current pace of new loans to be consistent with a modest recovery in GDP growth to 7.7%yoy in Q4, up from an expected 7.4% in Q3.

Briefly recapping Friday’s market, the S&P 500 (-0.30%) closed at the session’s lows to post its worst weekly performance (-2.1%) since mid-May 2012. US data flow was largely supportive as we saw the highest UofM confidence sentiment since Q3 2007 (83.1  after a +4.8pt rise) as well as a lower than expected core PPI print. JPMorgan and Wells Fargo reported better than expected headline earnings for Q3 but these were overshadowed by net interest margin pressure across both banks and sluggish loan  growth. JPM’s and Wells’ shares finished the -1.14% and -2.64% lower on Friday. Bank results aside there was an IFR headline stating that the “ESM lacks cash for Spanish bailout”. The article suggested that the ESM may not be able to fund a Spanish request for aid before the end of 2012 as it only has EUR32bn in paid-up capital and may not visit bond markets this year. EU officials played down the report noting that the ESM could tap markets this year if it wanted to.

Previewing the list of key US results this week we have a total of 84 S&P 500 firms lined up for Q3 reporting. Financials will remain a key focus but we will also start to see some important industrial names. Citigroup reports today (1pm London) followed by  Goldman Sachs (Tuesday), BofA and American Express (Wednesday) and Morgan Stanley (Thursday). Away from Financials, IBM, Intel, Coca-Cola, Johnson & Johnson, eBay, Google and Microsoft are expected to report sometime this week ahead of bell-weather  General Electric’s results on Friday.

In terms of data, we have a relatively eventful week in the US with key consumer, manufacturing activity, housing and inflation data due over the next 5 days. Empire manufacturing, retail sales and business inventories will be out later today. Tomorrow’s focus will be CPI, Industrial Production and the NAHB Housing Market Index. We then get Housing Starts and Building Permits on Wednesday; the Philly Fed index on Thursday followed by Existing Home Sales on Friday. In Europe, trade data for the region will be released throughout the week. The immediate focus will probably be the German ZEW survey tomorrow. We also get Euroland and UK CPI tomorrow and Italian industrial orders on Friday.

Bond auction wise Spain will tap 2015, 2016 and 2022 maturities on Thursday following a bills auction tomorrow. There is also a Portugal bills auction on Wednesday. On the political calendar, we have the second of the three US Presidential debates tomorrow with a focus being on foreign policy. In Europe all eyes will be on the EU summit as mentioned above and the regional elections in Spain's Basque Country and Rajoy's home region of Galicia this coming Sunday (21st).