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Entries in ECB (7)


Ahead of the open, (9-11) more Bunga Bunga

Much to this trader’s chagrin, firstly watching a muted reaction to Berlusconi’s exit, followed by a late rally in the US markets has reversed dramatically at the European market open. If you looked at 10yr bonds following word of resignation, you’d see the dislocation. Call it an early sign the US markets were naïve and wrong as optimism has dissipated quickly.

Although, it was ‘yes’ vote on the Italian 2010 budget, it was still a ‘no’ vote as it’s forcing Berlusconi to step down. “...would cause yield surge and risk asset sale.”. As discussed, PM’s exit = more uncertainty for Eurozone and this morning markets realize this with yields skyrocketing to >7.40% with ECB intervening after margin rates were first raised in France. Deposit charges on 10yr went to 11.65% from 6.65% on the LCH clearing house arm.

Away from the Armageddon in Europe, which now enters a new ‘unknown’ phase, the US markets ironically tested the ~1275 resistance area and now will have an even tougher time to get over it in the future. Start looking at supports noted this weekend. Total denial by markets recently may reach a boiling point.


Ahead of the open, (01-12)

A global ‘warming’ emergency synchronization… rescue beginning in December 5, but only a piece of the puzzle as banking and sovereign debt crisis is interwoven.

Just as the Shanghai exchange suffered one of its biggest declines in 2011 overnight with PBOC officials still dampening hopes intraday of an imminent easing…Boom!...PBOC cuts reserve requirements after close by 50bp starting Dec.5 (cuts amount of cash banks must set aside to spur lending).

=Futures market reverse about 20 handles into 8am.

In Europe, a dud of an EFSF deal reached by finance ministers, speculation policymakers had made no progress on propping IMF funds with ECB not ready to do anything substantial…. BOOM!...A FED led blitz of Central Banks backed by US gov’t with a US-Funded Liquidity Bailout of worldwide dollar crunch!!. Yes, the same USD funding stresses noted here before the eventual 1275SP- to 1159SP rout just over week ago needed a quick Global bailout!. Simply, central banks rescued what EU officials couldn’t (liquidity shortage) in a bold move taking matters into their own hands.

= SPX rockets and recovers almost all the ground lost in November.

There was not going to be fade job of Monday’s rally as the market ‘squeezed’ higher off fresh cheap cash injections to come. Funny, how you can fix Germany’s 1yr debt going negative this morning (probably kicker for action), China’s horrible market day off renewed hard landing fears and a European ministers inabilities in just a few hours. Note, this intervention isn’t the holy grail guarantee, but it is a piece of the Eurozone puzzle.

Of course, what ails banks is now seemingly fixed for the moment as their lending to each other simply trickles down to economies, but it doesn’t put a blanket over the debt sovereign crisis. Expect more from ECB going forward to make this a true turning point for the crisis. ECB hard-line/standing pat seems to be getting it’s way and sooner than later they will be satisfied to step in. (more political reform etc.). Also, expect IMF co-ordinated program to get off the ground as well.

Unfounded rumors of a bank struggling to fund itself  this morning might have the ‘mishap’ talked about here last week for something to be done.  Still, it’s likely the German 1yr this morning is what spooked the CB’s to let loose their contingency co-ordination. This wasn’t made up overnight, it’s been in the works just in case.  In all, that should give confidence to investors co-ordination is always a possibility.

In all, add ADP# 200k ahead of NFP# Friday ( .. last week here...Employment whispers for Dec 2 starting to come in at 200k~.)..and equities just became sexy again. Last weekend did smell like a prelude to a rally, just as in October rally (noted early this week). Financials rallied ~6% , leading the tape (along with materials (high beta coals (CLF, WLT) steels led (X,NUE ), energy, and industrials). Bascially, you can trade commodity- linked stocks such as above that have been Shadowlisted in the past, as well as the high beta earnings plays related to China ..(ie.WYNN, LVS, CMI.) or just related sector ETF’s.

Although most of the day was over with at 8:40am, the fact SP added some 10+ handles in the last hour suggests some ‘ longs only stepped in’ after the early morning short covering. This suggests we may buy single stocks in anticipation of more upside into year – end. So, did we get our wish from financials to lead rally, just like in October?? They are down nearly 25-30% YTD and big rallies usually see worst sectors bought first.

You may not believe in CB’s actions, EFSF, China ‘s RRR, but this is a day where you can’t ignore the price action. Things are actually being done a step at a time, recall note here investors want action, not more speculation around upcoming (meeting, summits).



Ahead of the open, (07-12)

The premise of being long stocks since last week remains intact.

As discussed, the S&P downgrade was going to be overshadowed by ‘hope’ and more band–aids.  As far as today, European bonds did not sell off on S&P news, thus keeping equity markets in a holding pattern most of the day. Speculation of Eurozone running 2 bail-out funds (ESM /EFSF – ESM succeeds EFSF mid’ 12) simultaneously for a period of time, doubling in essence to just under 1trl euros gave a bid to equities late afternoon. This would be construed as a half measure and /or even impossible to implement, so it’s no surprise market retreated again off ‘R’ 1265.  Again, speculation is not what market wants, it wants definitive action.  If this was a conclusive action, market would have held its gains. In all, last hour moves up or down like this are negligible as market awaits ECB Thursday/ EU on Friday.

Oh yeah, lost in the storm of headlines is a potential catalytic ECB meeting before the summit. Reason being the Draghi statement from last week was suggestive/implied SMP purchases could be stepped up if ie. reforms were progressing and/or achieved later. If this change of heart is reiterated and/or hints of lending to IMF, market should be happy!  If Draghi’s doesn’t repeat, watch out!  He can’t/won’t say SMP’s will be ramped, the numbers will show up a few weeks later, that’s is why just being ‘suggestive’ again matters so much.

In all, expect leaks (true or false) all day in regards to summit dictating intraday moves. Note, as we inch closer to summit, expectations being too high are increasing. Still, there is time left to‘hope’ and with ECB meet up to deal with before.


Ahead of the open, (08-12)

Although markets awash with reports today downplaying expectations for summit, market is seemingly shrugging it off for a day 3 of consecutive green closes. This is probably evidence of resiliency and so the risk is to the upside. Meaning, even if the summit comes to only a roadmap/ timetable (longer term plan), it may be sufficient this time around to kick the can some more.  This works as long as Eurozone ‘can’ doesn’t stray and roll left or right off the path. The ‘can’ this time may have enough recent band-aids on it to not explode into year end.  The fact a ‘treaty’on political/fiscal is the only real news Germany/France are making this week shows another band-aid for the longer term is being worked on and not a grand ‘shock and awe’ resolution to end crisis is coming from the summit.

All in, it feels like good news will get a bigger market reaction. Simply, if market is shrugging off the downplaying of expectations (not selling off) now, it shows investors are not expecting a grand resolution despite the ‘survival at stake’ headlines many keep (press, shorts) throwing out. “Expectations are too high”, setting up for a big market disappointment is another line being used, but markets keep showing they are sanguine to the summits end result.

 As far as the day’s trade, as cited into yesterday’s open the ESM/EFSF speculation was not worth having as it’s impossible to implement. After a green session overnight, German official rejected the notion by US market’s open sliding it to below SP1250 before the dip was bought and it was bought even before the 330pm Nikkei/IMF headline later denied). This indicates it wasn’t just a false report doing the melt up job. Financials as a group noted last week as a long will lead the way as today demonstrated again with the largest sector gain.

Again for Thursday, pointed out yesterday what to look for (ECB Draghi) and overall watching the Euro bond action for the equity markets.


Into the trading week, (Dec. 12- )

Investors seemingly always look to the weekend for catalysts and position so by Friday’s trading close, especially if there is a summit of major importance as was scheduled for Friday, Dec 9.  Well, not this time around as all news flowed prior to timetable catching more than a few investors off guard.  The European charade was basically concluded by the opening of US trading on Friday, Draghi’s ECB surprise comments on Thursday overshadowing what came to be expected...a ‘relief’ band aid summit agreement.  The markets hysteria on Thursday (big down) and Friday (big up) is just commonplace 2011 action. 

New debates will emerge; new and old speculation will come again.   As discussed, watch (still) the Eurozone bond markets to be the signal for equities.  While summit’s expectations came down during week and end result was underwhelming, Sov’ yields didn’t widen much as in previous underwhelming summit days.  A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.

Underneath the Eurozone mess was continued unfavorable guidance continuing in tech (majority). Noted, GLW, OVTI recently, there has also been HTC and last week TXN, ALTR, LSCC all dropped guidance. Example LSCC dropped to -14-17% from -4 to -9%. These were not expected cuts, these co’s updated just recently.  Maybe, it’s a good thing SP came out of last week up 1% as no one is really paying attention yet to what damage has already been done by Europe to the real economy.  FDX will be eyed on Thursday for all of the markets. Also company analyst days will be in focus ie GE’s this week for 2012 guidance. Global flash PMI’s are the first December economic activity barometers we’ll get mid -week.


Ahead of the open, (21-12)

So, was today’s market melt up of 35 SP handles because today’s news was ~2X better than yesterday’s 15 handle loss?. Hardly, today the market was a victim of no sellers vs. no buyers early on (opposite of what we've seen the last few trading days) and the speculation the market may reverse yesterday's losses came to fruition and more. If you add the illiquidity factor, you always have a chance for a seasonality melt up!. The gradual build up in ES pts. premarket (only 1205 at 7am) and open internals indicated the market would not be prone to day #4 of an early morning market sell- off. The rally was larger in points and very broad based with Financials, Tech (networking led with big gains as speculated in trade idea for morning, (NWX), APKT, JNPR >8% and more linked stocks to AT&T), Industrials, Materials, Energy all 2-3% higher early. Oil rose ~$3 early and Gold was up ~20, the risk- on commodity bounce suggested late last week took off.

As far as the news helping sentiment was hardly fresh news, unless majority of what is left of market players has been asleep at the wheel recently or not understanding ECB's LTRO announcement 2 weeks ago.(more below)

  • Spain successful notes auction was cited, bond yields have been falling for days to 5% levels and it was the ‘second consecutive successful weekly’ auction. This shouldn’t be a surprise given last week’s and recent liquidity push. This directly relates to ECB’s 36mth LTRO program demand results on Wednesday, which is getting attention (finally) for being an unprecedented and generous liquidity move.QE, game changer like to some.  Yes, the same ECB liquidity push alluded to here at least 3 times (below) recently as something the market has been overlooking following Draghi’s ‘cold water’ pour recently. Two weeks late,r it's all the melt up rage and the boost to get over 50MA.

(In all, there is enough liquidity provided by ECB that should contain yields from re- widening to recent alarming levels for the last 3 weeks of ’11 trading”…” It’s not from pure Eurozone fear/panic ......(sov’bond yields ok, ECB measure from Thurs a help as noted). "...."A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.")

Once the results are in, watch sov’ yields to see if they keep going down to gauge LTRO’s success rate, not how high demand was (expectations grew today to ~500bln), which is buoying markets today. (Banks borrow from ECBfor up to 36mth at ~1% and buy sov’ bonds then pledge that paper to ECB (Arbtrade/carry trade for banks) is the program hope. The debate will be how much of the amount will be used to purchase sov' bonds/carry positions vs. banks use with funding problems.

Also in Europe, Germany’s IFO was acknowledged as an ingredient to the rally, but folks, Germany’s PMI came in 2pts higher last week to 51+ signalling this number today. As far as U.S, we’ve been getting solid data for weeks, is a solid housing start report all that surprising news?.  Also, it was bracketed here (another RRR coming) in response to China news yesterday, today this same angle was picked up as ‘easing’ positive for the markets.

In all, a perfect gift for longs to sell and/or to believe in Santa "ECB' Claus for a little longer....Unfortunately, this last positive (LTRO) is out of the way now and euphoria should subside. Focus will turn to (ie). SP AAA resolution will now come with more risk due to higher market prices.(1250 resistance). A rare miss from ORCL will be defended, but will have an impact as some factors mentioned by management will definitely effect other co'.


Into the trading week, (Dec 27- )

Even the ES futures have an “I’m out of the office”, note up before Tuesday’s trade (not open until 6AM). That pretty well sums up the thin trading environment going into the last week of ‘11, so will keep it short as everything written last week extends over to this week. 

After 35 SP handle rally last Tuesday, “In all, a perfect gift for longs to sell and/or to believe in Santa "ECB' Claus for a little longer”. The little longer carried on to the last 3 trading days as earmarks of window dressing became apparent Thursday and continued for another 100+pts DJIA day with SP moving into the logjam of resistance in 1260’s on Friday.  

Helping the cause is S&P seemingly delayingAAA resolution into ’12 and Washington politics cutting a deal of sorts delaying any potential negative market catalyst until 2012.

The only hurdle for even more upside remains the underperforming R2K (again on Friday). Clearly, the underlying group to watch for market direction.