The uncertainty in Greece to form a new government as well as the financial troubles in Spain has put a downward pressure on EUR and has tipped the USD to rise against euro as the investors are looking for a safe haven.
This forms a downtrend in EUR/USD on a daily chart and reaches the lows of the beginning of the year, it as broken the support of 1.3000. It is possible that with a continued bearish pressure in Europe EUR/USD will break the 1.2650 support as well.
On Europe, traders are bulled up ahead of the ECB Thurs morning (we get the policy statement, which is usually a non-event, at 7:45amET, and the more important press conf @ 8:30amET), w/many thinking that Trichet will present something (either a specific policy or more likely verbal support) to calm the escalating tensions.
The FT article Wed morning (“Trichet hints at bond purchase rethink” http://bit.ly/hDX3JQ) seemed to spark speculation of a major unveiling Thurs morning, although it doesn’t seem like the ECB will do much more than back away from its aggressive exit strategy rhetoric express confidence in the eurozone economy and the euro itself (specifically this morning, Reuters is reporting that Trichet will pledge to keep its unlimited 3-month operations in place but will not announce massive new bond purchases; the FT Alphaville writes that many leading economists are downplaying the chances for a “shock and awe” announcement and are preparing for a disappointment http://bit.ly/ijMsEW).
There was some confusion Wed around 12pmET, when Reuters crossed a headline stating that the US was considering bolstering the eurozone bailout fund via its contributions to the IMF – this caused the SP to spike another 5-6 points and stocks held those gains despite the story being denied by the WSJ (overnight a few US officials, inc. Rep Pence, spoke out against the idea of the US contributing financial assistance to Europe).
Events to Watch for the Week Coming Up
The most important catalysts will be on the economic front. We will get the Nov manufacturing PMI/ISM readings (China hits late Tues night and the US comes Wed morning) as well as the US jobs report on Fri 12/3 (the St is looking for 143K in total non-farm adds; recall the Oct BLS reading was pretty encouraging). The Beige Book will be published on Wed 12/1 and also is in focus. On the corporate front, we will get auto sales on Wed and retail same-store-sales on Thurs (the retail sales releases will give companies an opportunity to update the St on how Black Friday went). ALTR and LSTR both will be publishing mid-Q updates (the first such updates for the CQ4). There are a few more Oct-end earnings (OVTI, ARO, SNPS, AVGO, TOL are among them). Looking towards Washington, the White House will host a summit on Tues 11/30 between Obama and the new GOP leadership (as far as the market is concerned, the big topic will be the fate of the Bush tax cuts). This coming weekend (Nov 27-28), we could see news on the Ireland bailout front (on Fri, press reports indicated that a formal aid package for Ireland could be unveiled this Sunday 11/28). The ECB meeting on Thurs 12/2 will be very important as the bank will discuss its exit strategies for 2011. Also – the US carrier group (led by The George Washington) is due to arrive off the coast of Korea and will be conducting military exercises w/the S Korean government starting Sunday (this will raise the risk of more altercations).
Ireland downgraded by S&P (out Tues night) – Standard & Poor’s Ratings Services said today that it lowered its long-term sovereign credit rating on the Republic of Ireland to ‘A’ from ‘AA-’ and its short-term rating to ‘A-1? from ‘A-1+’. At the same time, Standard & Poor’s said that it placed both the short- and long-term ratings on CreditWatch with negative implications. “The lower ratings reflect our view that the Irish government will have to shoulder additional costs associated with further capital injections into Ireland’s troubled banking system.
Irish Banks – S&P To Assess Impact Of Irish Downgrade On Banks – The consensus is that the fortunes of the Irish banking system have become very closely intertwined with those of the Irish sovereign and that the sovereign downgrade could have a negative impact on the creditworthiness of the four rated domestically owned Irish banks, namely Allied Irish Banks PLC (BBB+/Negative/A-2), Anglo Irish Bank Corp. Ltd. (BBB/Watch Neg/A-2), Bank of Ireland (A-/Negative/A-2), and Irish Life & Permanent PLC (BBB+/Negative/A-2). S&P
North Korea shells a South Korean island, killing one South Korean marine and wounding several others; South Korea has scrambled fighter jets to the area and raised its military alert to the highest level. South Korean president Lee Myung Bak has convened an emergency cabinet meeting. The North Korean attack comes as South Korea’s annual Hoguk military exercises are under way (according to the NYT, the exercise has been sharply criticized by Pyongyang as “simulating an invasion of the North” and “a means to provoke a war.”). Low-level border skirmishes across the demilitarized zone and particularly the NLL are not uncommon even at the scale of artillery fire. Stratfor/WSJ/NYT.
The most important catalysts will be on the economic front. We will get the Nov manufacturing PMI/ISM readings (China hits late Tues night and the US comes Wed morning) as well as the US jobs report on Fri (the St is looking for 143K in total non-farm adds; recall the Oct BLS reading was pretty encouraging). The Beige Book will be published on Wed 12/1 and also is in focus.
On the corporate front, we will get auto sales on Wed and same-store-sales on Thurs. ALTR and LSTR both will be publishing mid-Q updates (the first such updates for the CQ4). There are a few more Oct-end earnings (OVTI, ARO, SNPS, AVGO, TOL are among them). Looking towards Washington, the White House will host a summit on Tues 11/30 between Obama and the new GOP leadership (as far as the market is concerned, the big topic will be the fate of the Bush tax cuts).
The coming week will see news flow slow down meaningfully, w/the US observing Thanksgiving on Thurs (US equities markets are closed on Thurs and will close early at 1pmET on Fri).
For the Fed/Treasury, all eyes will be on the auctions Mon-Wed (2s Mon, 5s Tues, and 7s on Wed) given the back-up in yields and the last round of sales (recall the last auctions, on Nov 8-10, were relatively sluggish, esp. the 30yr).
Stocks finish the day and the week flat (the SP500 was nearly perfectly unchanged W/W). Heading into the weekend, the SP500 is back to the levels immediately prior to the post-Fed surge (recall the Fed decision hit on Wed 11/3 and the SP ripped ~2% on 11/4; we are back to those 11/3 levels). We have spent the last couple weeks consolidating/digesting the recent rally and still remain up ~14% from 9/1 (despite the sluggish action of the last two weeks, the SP500 is only off ~2.2% from its highs).
European Finance Ministers meeting – The most important event may wind up being the European Finance Ministers meeting on Nov 16 (at which Germany is hopefully going to provide some clarity on its plans for changing the European bailout frame.
Washington – Congress returns for a lame duck session on Mon and the new GOP leadership attending a White House summit on Wed (the big topic of discussion will be the Bush tax cuts).
Foreclosures – The Senate Banking Committee will hold a hearing on foreclosures on Tues at 2:30pmET and the House Financial Services Committee will be holding a hearing on the same topic on Wed at 10amET.
Chinese President Hu Jintao said on Sunday significant uncertainties remain about a global economic recovery and warned that trade protectionism had “risen notably”. Reuters
China – the country may consider a series of measures aimed at preventing “hot money” from hitting its shores. Ma Delun, a deputy governor of central bank the People’s Bank of China (PBOC) said such a policy kit would include reserve requirement adjustment, management of foreign exchange positions, and open market operations – Reuters
China’s four biggest state banks have used up their full-year credit quotas for property developers and will stop extending new loans to them for the rest of the year – Reuters
China will take a step forward in its competition w/Boeing and Airbus this week when it shows off a full-body mockup of a new single aisle plane it hopes to have in production by ’16. LA Times.
