Overnight Sentiment: Ambivalent

Another day of ugly news out of Europe, with both macroeconomic and monetary data coming in to confirm that downward slope of the European forward trajectory (not to mention funny: below is a chart of Greek retail sales. Hardly any commentary is necessary). Yet despite some recently gravity in the EURUSD, for the time being the futures are trending flat to slightly down, perfectly ambivalent as to how will ease first as long as someone eases. Will this sustain, or will a disappointing Chicago PMI at 9:45 am once again send stocks first plunging then soaring on hope of imminent NEW QE? We will find out shortly. In the meantime, here is a recap of the overnight market action.

First, Greek retail sales:

From BofA:

Market action

Several Asian equity markets were closed today for holiday. Both the Japanese Nikkei and the Shanghai Composite were closed. The equity markets that we cover and were open today enjoyed healthy rallies. The Hang Seng was lifted 1.7% while the Indian Sensex finished 0.4% higher. The Korean Kospi was up 0.3%.

In Europe, equities are trading flat in the aggregate. The region's blue chips are down 0.5%, shares on the London exchange are off 0.3% while French listed firms are down 0.6%. In Germany, the DAX is outperforming up 0.2%. On Wednesday investors will be focusing in on the Presidential debate between Sarkozy and Hollande. Recent polls place Hollande as the winner. Elections will be held on Sunday. As a side note, Greece will also go to the polls on the same day. At home, futures are pointing to 0.1% drop in the S&P 500 later today.

In bondland, Treasuries are basically flat across the curve. The 10-year yield is currently yielding 1.94%. In Europe, yields are mixed. The UK's gilt is 2bp higher at 2.14% while the German bund is bid with its yield down 1bp to 1.69%. Our advice is to watch the yields on Italy and Spanish debts. Rising yields on both would be an indication that the European sovereign debt crisis is flaring up again. Currently Italy's 10-year yield is 5.60% and Spain's is trading at 5.82%. Both are elevated but not at uncomfortable levels.

The dollar is marginally stronger with the DXY index up 0.1%. Commodities are mixed with WTI crude oil down 30 cents to $104.63 a barrel and gold up 65 cents an ounce to $1,663.43. 

Overseas data wrap-up

The only thing that caught our attention on the global economic calendar was the release of the March retail sales report for Germany. Retail sales advanced 0.8% mom in March after falling 0.9% mom in February. Today's increase was slightly weaker than market expectations of a 1.0% increase. Retail sales are a violate sub-component of overall consumption spending. Our European team believes that the German consumer will be a driving force in the country's economic recovery. They look for overall consumer spending to rise by 0.4% yoy in 2012 due to a low unemployment rate, healthy wage increases and low borrowing costs.

The week's events

This week's data highlights are the ISM manufacturing index on Tuesday and the employment report on Friday. We expect ISM to rise slightly to 53.0 in April from 52.4 in March, making the index essentially flat for five months. Payrolls will be closely watched after weakness in March. We expect nonfarm payrolls to expand by 155,000 in April after a 120,000 increase in March, the smallest in five months. With the FOMC meeting past, Fed officials return to the speaker circuit.


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