Technocrat governments risk deepening EU divisions

Technocrat governments risk deepening EU divisions

China a long way from a hard landing

China a long way from a hard landing

Euro finally catching up with those dire fundamentals

Euro finally catching up with those dire fundamentals

Italy’s demise shows Eurozone well past the point of no return

Italy’s demise shows Eurozone well past the point of no return

CEEMEA Unlikely to Follow ECB Rate Cut

CEEMEA Unlikely to Follow ECB Rate Cut

Super Mario’s rate cut lacks necessary shock and awe

Super Mario’s rate cut lacks necessary shock and awe

European headwinds looking too much for SandP500 let alone DAX

European headwinds looking too much for SandP500 let alone DAX

Greek referendum spanner threatens to break austerity model

Greek referendum spanner threatens to break austerity model

BoJ intervention creates quick profits for long Asia FX idea

BoJ intervention creates quick profits for long Asia FX idea

Dollar ends up the loser, Fed should be pleased

Dollar ends up the loser, Fed should be pleased

Eurozone deal lacks aggression, smacks of compromise

Eurozone deal lacks aggression, smacks of compromise

Cable push running out of steam, waiting for the turn

Cable push running out of steam, waiting for the turn

US advance Q3 GDP could be last hurrah for the optimists

US advance Q3 GDP could be last hurrah for the optimists

Week In Review

Week In Review

Brent recovery fails to factor slower growth

Brent recovery fails to factor slower growth

Eurozone landscape littered with traps, bunds maybe one of them

Eurozone landscape littered with traps, bunds maybe one of them

Review

Review

Euro reversal looks too much, keep an eye on DXY support

Euro reversal looks too much, keep an eye on DXY support

Bund chart suggests markets have arrived at the turning point

Bund chart suggests markets have arrived at the turning point

Headline payrolls figure less encouraging once one-off’s stripped out

Headline payrolls figure less encouraging once one-off’s stripped out

Proactive BoE couldn’t contrast more starkly with ECB stubbornness

Proactive BoE couldn’t contrast more starkly with ECB stubbornness

SandP 500 bounce symptomatic of volatility, no turning point

SandP 500 bounce symptomatic of volatility, no turning point

Currency markets offering clarity in a muddled (for some) world

Currency markets offering clarity in a muddled (for some) world

Better US data, but nothing moves in a straight line

Better US data, but nothing moves in a straight line

Eurozone hopes misplaced, stocks to remain volatile and thus vulnerable

Eurozone hopes misplaced, stocks to remain volatile and thus vulnerable

Hope driving EUR gains, but hope is not a strategy

Hope driving EUR gains, but hope is not a strategy

Fed’s twist signals impotence, bad for SandP good for USD

Fed’s twist signals impotence, bad for SandP good for USD

Sterling still catching up with economic realities

Sterling still catching up with economic realities

Greek talks/ FOMC shouldn’t be game changers, market prepped to sell the fact

Greek talks/ FOMC shouldn’t be game changers, market prepped to sell the fact

Above consensus Michigan hardly a sign of confidence

Above consensus Michigan hardly a sign of confidence

Politicians now panicked enough to prompt a bund correction

Politicians now panicked enough to prompt a bund correction

Brent prices vulnerable to developing macro risks

Brent prices vulnerable to developing macro risks

Dollar index looking all 2008 again

Dollar index looking all 2008 again

Trichet more pragmatic about risks, euro to soften

Trichet more pragmatic about risks, euro to soften

Stimulus hopes leave stocks looking firmer, for now

Stimulus hopes leave stocks looking firmer, for now

Where the Swiss tread will others dare to follow? PM Noda!

Where the Swiss tread will others dare to follow? PM Noda!

Bund lifeboat sails off, rest left to arrange the deckchairs

Bund lifeboat sails off, rest left to arrange the deckchairs

Payrolls pile pressure on Obama and the Fed

Payrolls pile pressure on Obama and the Fed

Hope insulates stocks for now, policy responses likely to be inadequate

Hope insulates stocks for now, policy responses likely to be inadequate

How far can the gold correction run?

How far can the gold correction run?

Moody’s downgrade irrelevant, risk appetite determines JPY levels

Moody’s downgrade irrelevant, risk appetite determines JPY levels

Bund profit taking shouldn’t trouble mid-term bull trend

Bund profit taking shouldn’t trouble mid-term bull trend

Difficult to find an attractive looking stock chart

Difficult to find an attractive looking stock chart

Phily Fed follows Michigan into the gloom

Phily Fed follows Michigan into the gloom

Is gold going parabolic?

Is gold going parabolic?

Equities roll over as dire data bolsters double dip thesis

Equities roll over as dire data bolsters double dip thesis

The ‘AAA’ rating is an obsolete benchmark anyway

The ‘AAA’ rating is an obsolete benchmark anyway

German growth goes from Teutonic to Tectonic

German growth goes from Teutonic to Tectonic

EUR/JPY well placed to gain on improving sentiment

EUR/JPY well placed to gain on improving sentiment

Michigan Index slump should fuel double dip fears

Michigan Index slump should fuel double dip fears

UK safe haven status ignores lurking macro problems

UK safe haven status ignores lurking macro problems

Eurozone debt pressures clear to see despite ECB best efforts

Eurozone debt pressures clear to see despite ECB best efforts

Bernanke kicks the dollar deeper into de-basement

Bernanke kicks the dollar deeper into de-basement

Trashed balance sheets mean Bernanke’s confidence trick can only unravel

Trashed balance sheets mean Bernanke’s confidence trick can only unravel

Unilateralism, another word for protectionism

Unilateralism, another word for protectionism

BoJ intervention can’t redress external forces

BoJ intervention can’t redress external forces

Sub 2.00% Bunds post or prior to the Eurozone end-game?

Sub 2.00% Bunds post or prior to the Eurozone end-game?

SandP 500 in critical condition, needs to retake 1,294 to settle

SandP 500 in critical condition, needs to retake 1,294 to settle

Debt Debacle = Downgrade, Dire Dollar

Debt Debacle = Downgrade, Dire Dollar

The Fatal Flaw In Europe’s Second “Bazooka” Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP | zero hedge

The Fatal Flaw In Europe’s Second “Bazooka” Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP | zero hedge

Are Eurozone leaders finally facing up to reality?

Are Eurozone leaders finally facing up to reality?

Inevitable European dithering underpins Bund uptrend

Inevitable European dithering underpins Bund uptrend

Bank tests obfuscate the real points of stress

Bank tests obfuscate the real points of stress

Wall Street rally reveals bulls appetite for good news

Wall Street rally reveals bulls appetite for good news

Can’t get much worse than the June jobs report

The second quarter was never going to go down as one of a strengthening US recovery but the June jobs report really rubs salt in the wounds with just 18k added to June payrolls vs. market median estimates of +105k which compares to the 120k+ needed to keep the unemployment rate steady (up 0.1% to 9.2% today).  This looks even worse when factoring in downward revisions to May and April leaving a net figure of -26k.  Hourly earnings were also flat m/m (mkt +0.2%) while hours worked slipped too (34.3 from 34.4).  The expected H2 upswing can’t come soon enough.


No surprise to see markets react negatively, the dollar and UST’s both gaining ground as risk was cut from books with the break in the 10-year in particular looking significant. It certainly shuts off higher targets towards 3.40%.  Bulls in fact should be now talking up a move back towards 2.85%/2.87% now.  We’re inclined to take a more constructive view on equities with the recent run up leaving quite a bit of profit on the table for the bulls which can be booked.  Technically a short-term dip back towards 1,314/17 in the S&P500 (ES1) looks feasible but we’d expect to see real money begin accumulating again in this band.



While recent data has been bad we think this should be pretty close to the trough, or at least expectations should readjust which in turn would give less bad figures at least some degree of positive shine.  Citigroup’s economic surprises index (measuring outcomes vs. economists’ estimates) provides some supporting evidence of this too.

Pound trading peseta like as ECB meet highlights rate differentials

The ECB reaffirmed its inflation fighting credentials, raising rates a further 25bps to 1.50% at its July meeting, as we expected.  Governor Trichet’s term may be drawing to a close (November) but there was no sign of any mellowing in his tone, reminding at this afternoon’s press confernece that monetary policy is still accommodative and hinting that further tightening was needed despite the economic risks surrounding the seemingly never ending peripheral debt crisis.  There was at least one concession, the announcement that the ECB would suspend its minimum credit rating threshold for Portuguese bonds until further notice, citing recent fiscal steps.  But there was little real slack for governments hoping for any substantial monetary tonic.  The suggestion of higher rates was enough to tempt money back into the EUR, though the Euribor strip was little changed on the day suggesting FX traders might have got ahead of themselves.  Overall the EUR/USD picture is modestly bullish, we’d expect most will look to continue plying the range here, which on our chart looks set at 1.4160 – 1.4590 for the moment.

This backdrop couldn’t contrast more starkly with the fortunes of the pound with the BoE holding rates again.  There is little prospect of a hike this side of 2012 and given the patchy nature of the economic recovery even then the MPC is unlikely to be in that much of a hurry having sat through the current CPI hump.  Sterling has already suffered on the back of the increasing spread between UK and Eurozone rates with EUR/GBP hitting 0.90 again.  £8.00 cups of coffee (we won’t even contemplate what a beer costs) on the Cote d’Azur might be enough to persuade continental holiday makers EUR/GBP shorts are the way to go but it’s unlikely the pound will see anything but a short-term reprieve without a marked improvement in macro data.

2-year swap spreads suggest that there isn’t any floor under sterling; in fact the risk seems to be skewed to further weakness in trade weighted terms.  Of the major crosses GBP/USD looks the more interesting prospect technically.  The tone here is decidedly bearish sub 1.6140/60, in fact sub 1.6300 where TL and some of the more important longer-term moving averages are packed.  The first downside objective is to crack the recent intra-day lows at 1.5911/14, a stone throw away now.  Through there a run towards the 38.2% Fib line (1.5789) would be the aim. This needs to hold to avoid a deeper move back into the 1.5500 congestion zone and the Sep/Dec lows around 1.5350.

Profit taking shouldn’t derail S&P500 bulls

News flow weighing on the equity market mood on Wednesday with not only Moody’s decision to slash Portugal’s debt rating into junk territory last night but also another rate hike from the PBOC rekindling China slowdown fears encouraging profit taking.  The e-mini S&P (ES1) futures have ticked down close to 7pts since the close as a consequence, hitting the 1,330.00 marker thus far, a touch above the first intra-day support level at 1,328.00. A crack here should see the faster money look to take the pair down in the direction of the more important 1,319.00/1,313.00 zone where there is some further intra-day support protecting the 100 and 55-DMA’s at the lower end of this band.  Our daily indicators suggest the market is by no means overbought however, let alone signalling a more meaningful top is in place, so our preference for buying weakness remains.  As we noted last week bulls shouldn’t be too ruffled whilst the market holds above 1,301 and we’d be surprised if the market can slide as far as that this week.

EUR/JPY at the top of the range, shorts tempting

EUR/JPY has had a modest pullback after the late June rally stalled at 117.80 resistance.  The range traders should be encouraged by this with the base of the recent trading range down at 113.50/114.09 (200-DMA) compared to current levels around 116.96, which is pretty close to a three to one risk reward ratio for a short.  While there aren’t any particularly compelling sell signals popping up on our daily indicators yet the hourly charts do hint at downside pressure.

On the fundamental side the Japanese are obviously keen to see a weaker but JPY intervention prospects look rather slim currently.  We’d probably need to see USD/JPY to make a decent run through 80.00 to prompt further BoJ buying.  Equity gains are probably the greater risk for EUR/JPY bears, keeping pressure on the principle funding currencies (JPY/USD/GBP) where the policy stances are markedly divergent from the ECB’s.  While we’re bullish equities on a multi week time frame after the strong gains of last week some consolidation wouldn’t be surprising which in turn would allow the EUR to drift lower in the short-term.  Eurozone debt problems are rarely off the front pages too, underlined by this evening’s decision to cut Portugal’s debt rating to junk (Ba2) which ought to counter another (probable) ECB rate hike on Thursday.

Against this backdrop any run back towards EUR/JPY117.20 should be viewed opportunistically, working a stop on a close above 117.80. Shorts should add if 115.80/90 falls with a 114.30 target.

QE2 finale, rallying stocks dull UST allure

On the Treasury’s side the improving risk back drop not to mention the market hitting the milestone that is the official end of QE2 has been more than enough to keep sellers in the ascendancy.  The 10yr chart looks very bullish (from a yield perspective).  A clear break of 3.21% (38.2% Fib level) would leave 3.40/43% as the most viable short-term target, so 18-20bps of upside.  Bond shorts should be able to hold out north of 3.10%, a swing through here would suggest we’ve found a top or are at least going to move into a range trade and see some squaring. Treasury bears should be reluctant to chase yields once higher levels are hit though (north of 3.40%) with the inflation outlook far from threatening and the Fed set to remain a good buyer as it looks to reinvest maturing paper/coupons it holds on its balance sheet not to mention what remains a steep yield curve.

S&P sees a week of gains as bulls cement control

US data has started to look a little better over the past week, at least from the activity side, with better than expected May durable goods orders (0.4% over mkt estimates @ 1.9%), a strong Jun Chicago PMI (61.1 vs. 54.0 median) and Milwaukee NAPM (59.3, mkt 59.0) while June ISM manufacturing also showed a solid pick-up (55.3 vs. 52.0 consensus).  Confidence survey’s appear a little more fragile but we’d expect these will follow suit over the summer.

The stock market reaction to Friday’s ISM numbers suggests the market also buys into this ethos at the moment with the S&P, already through the 1,315 area which was our first objective, jumping towards 1,325.  Bulls should be able to hold the market above 1,301 now and only sub 1,293 would shorts begin to look viable again.  The aim is to drive the market towards 1,347.5 where the June reversal began and from here, after some consolidation, mount a push through 1,400.  We’d note that even after the recent bounce the market is not overbought. Buying weakness should be the specs game.

Dollar Index to struggle during equity advance

The long-term fate of the dollar continues to perplex, recent analyst chatter arguing central banks need to make a permanent shift to a basket system more closely linked to trade patterns in the absence of any credible alternative to the dollar - the closest the market gets to consign the greenback to the dustbin. Looking at the dollar index on the daily chart there still looks little in the way of support, underlined by the slump we’ve seen this week – DXY down from just shy of 76.00 back to 74.31 at the time of writing.  From here there is some minor trend support at 74.08~ but really the June low at 73.506 is the first decent level.  Things look a little more constructive on the weekly chart but again we’re not that far from key support, 72.80 the line in the sand here.

The risk remains that we see another wave down which would take the dollar index to new lows (sub 70.00) and only a sustained break back above 76.35 would suggest that we can see anything more than a multi-day bounce.  The bad news is if this does occur it seems probable that our call for a sustained pick up in equity markets is wrong.  While trading opportunities are a little limited at this point in the range, shorts from 75.50 being our choice at the moment, we keep a close eye on how the chart develops as equity gains begin to slow.

Bears retain control of Nymex Crude sub $100

Nymex crude (CL1) has had a nice move up today with a 2.2% gain.  However this merely brings prices to the top of the current trading range and critically resistance at $96.11/$96.26 is still untroubled.  Any further headway towards these markers should see spec shorts tempted back, with the current bear trend needing a push through $97.10/30 to suggest we’ve seen a more damaging setback – and in turn shifting the s/t target to $100.  Below $100 downside targets remain the the real draw for the bigger accounts.


Indeed, we feel fading rallies in the $95.00-$100.00 zone offers good risk/return dynamics aiming ultimately for the mid $80.00’s.  A move back through $92.77/80 is the first objective and should see shorts begin to add to positions again, looking for a test and eventual break of the $89.60/70 June lows.  Once this area is cleared a push towards more important mid-term support, which lies at $83.34 (38.2% Fib of the Dec ‘08/May ’11 rally) and $83.85 (the Feb low) would be on the cards.

Developing S&P rally looks like it has legs

S&P500 has managed to string together a couple of good days and more importantly Tuesday's finish pushes the market through recent intra-day tops to leave us at the highest closing level since June 3rd (based on ES1). Equally interesting is how solid support now looks with that 200-DMA (@ 1,263) proving a very good floor which leaves us with attractive risk reward levels. Working from a long base and looking to add on any short-term dip mid range leaning on this marker on a closing basis (or perhaps an intra-day stop @ 1,257 if you're wanting to reverse if this zone breaks) looks sensible. 1,315 is the first target area on the topside and if this area can be cracked 1,350 would be the draw.


Given how US macro data has been printing you have to think a lot of bad news is now priced and assuming the Greeks can push their next (not last) fiscal plan through to keep bailout funds flowing another 'risk on' phase looks probable. Such an environment should really have the potential to attack the Bid Laden bounce highs (1,375ish) and potentially lift the market towards the 1,400/1,430 area over the rest of the summer. Given how things have been moving this probably rules out any extension of the dollar bounce from the early June low and favours plying EUR/USD from a long base again (entering sub 1.43).


We still like the Bund chart mid-term but it could also set back the bull move here where there is still a half point of P&L despite the 1pt pullback of the last two days on the table.

Greek debacle not quite terminal for the EUR

Fears the Greek debt crisis is snowballing out of control have hit asset markets in recent days, underlined most clearly on the currency side by the slide in EUR/USD from the 1.4697 high trade on June 7th back down to the 1.4100 area. But for the moment it doesn't appear to be a significant breakdown on the EUR chart with very solid support so far untroubled at 1.4000. In fact we'd probably need to see the 1.3770 and 1.3820~ area (200-DMA) fail to suggest that we're on for a more prolonged decline from here. Note at the onset of the European debt crisis this pair traded down to 1.1877. Being short prior to such a break risks leaving one exposed to politics - which ultimately the whole EUR project is. It's worth keeping an eye on the dollar index (DXY) - where the EUR obviously carries a significant weight - which looks slightly more constructive on the chart and would be better placed to benefit from any stabilisation/improvement in US data in the coming weeks while still offering exposure to the Greek tragedy/bearish EUR theme.

Bunds Advance Still Looks Robust

While many appear sceptical sub 3% Bund yields can be sustained looking at the Bund chart (generic RX1) the outlook is pretty robust with solid support now in place at 124.70/74 which should provide a platform to mount a march on towards the 50% Fib line at 127.32 and from there on towards 129.00+. Bulls should take further encouragement from the longer-term moving averages too with the mkt edging past the 200-day and the 55 crossing above the 100-day. Using weakness to accumulate looks sensible. Given ECB's policy bias curve trades should also work well, a bullish bias to the 2/10's currently around 142bps (based on generics). Historically this trade works well during tightening cycles.