Vantage FX | Italy wobbles, Euro rallies, FTSE poised for a move | 11th December 2012

December 11, 2012

I’m sitting here listening to a BBC interview with Jose Manuel Barroso the EC President after the EU formally accepted the Nobel Peace prize overnight. The focus is on Greece and whether a Grexit means that Europe should give back the prize. No one cares though – the market has moved on and it is Italy, Mario Monti and Silvio Berlusconi who are now the markets focus.

Last night markets hit the Italian stock market hard and it was down around 3.79% at one point before closing down just 2.2%. Italian bond yields rose 30 odd points and Italian CDS spreads were similarly pressured. The rest of Europe was however less worried recovering from early losses as you can see below in the stocks section. Of note Monti said there would not be a power vacuum inside Italy.

I understand market reactions, they need not be over dramatized. Let me also remind you that the current government has not left and is fully in charge and will be so until a new government comes up after parliamentary elections.

I am not considering this possibility [of running for election] or particular issue at this stage – our efforts are being devoted to the completion of the remaining time of the current government, which appears to be rather short time.

Monti also warned against populism during the campaign and French President Hollande was entirely non-plussed saying

The euro crisis, I’ve said it before, is behind us. We’ve given Greece the funds it was waiting for. In Spain we’ve helped keep the banks afloat. In Italy, even if there’s political uncertainty, I’m sure the Italians will address it.

So there you go – move along nothing to see here.

And I guess that is the verdict of the markets which with the exception of Italy didn’t over dramatise the resignation of Monti at all – but as ever anything that threatens European Governmental stability threatens markets so we are keeping a weather eye on it.

Elsewhere the data out of China was a bit disappointing yesterday with the trade data showing a much lower surplus of $19.6 billion versus the expectation of $26.7 billion and $32 billion last. Exports were up 2.9% year on year while imports were flat.

In Australia yesterday the home loan data that rose just 0.1% in October compared to the 3.1% the market had expected to me simply highlights the key point I have been making and my colleagues over at Macro Business have been making for well over a year now and that is that austerity Australian style  is an enduring theme because Australian’s just have too much debt – although unhelpfully we call it credit to mask what it really is.

In Germany overnight the data on Exports was better than expected helping the Euro rally a little. Exports rose 0.3% in October against expectations of -0.5% and from -2.4% the previous month. The recovery in China over the past few months based on our studies will support German exports in the months ahead.

Stocks

In Europe as noted stocks were off early but for the most part with the exception of Italy and Spain they recovered to claw back into the black. The FTSE was 0.12% higher, the DAX rose 0.17% while the CAC was 0.18% higher. Madrid was down 0.68% and as I noted previously Italian stocks fell 2.2%.

As you can see in the chart above the FTSE is at a very decisive point and so far has been unable to break out and through the trendline resistance that stretches back to the recent high in February 2011. With the DAX consolidating its recent break perhaps the outlook for European shares is, incongrously, turning brighter. But as we always say never pre-empt a break until you see the break.

In the US with 30 minute to go before the close the S&P 500 is up 0.07% to 1419, the Dow is up 0.22% and the NASDAQ is 0.26% higher.

Asia was mixed but fairly quiet yesterday with the Nikkei up 0.07%, Hang Seng rose 0.39% and Shanghai was up 1.07% continuing the lack of correlation between the Shanghai market and Chinese data. The ASX had a fairly small gain of 0.14% after the data highlighted the economic disparity within the economy.

FX

Last night was a bit of a weird night when you think about – Italy in trouble but the Euro rallies. Indeed the US dollar was off slighthly across the board. If I was to have a stab at it I would guess that it is the German export data and a technical bounce of Friday’s low more than anything that helped the Euro higher but in the grand scheme of things the ranges of the past 24 hours are just noise.

Euro traded down to 1.2878 before rallying back to sit at 1.2933 toward the top of the days range which was at 1.2942 in the past 24 hours. Likewise GBP recovered from a drop to 1.6011 to sit at 1.6068 as I write. USDJPY is essentially unchanged on the day as is the AUDUSD.

For those looking for an obvious trade (usual caveats about making you own decisions apply) the chart above of USDJPY shows the clearest set up for a range top or a break depending on your proclivity and the way you like to trade. This pair never pulled back as far as I thought it would and it is worth noting that my trend indicators are still pointing higher – I was trying for a counter trend move.

Commodities

Technically Nymex crude looks like it is very close to a complete break down and is only 50 cents or so above the $85 Bbl that I think would trigger the selling – that is another one worth watching if you like to trade crude.

On the shiny stuff Gold and Silver continue to consolidate recent moves but both of them, particularly Silver loook biased lower on the charts. Gold sits at $1711 oz up 0.46% while Silver is up 0.58% to $33.24 oz. On the Ags Corn and wheat were down around 1% each while Soybeans were roughly unchanged. Copper rose 1.17%

Datawise

In New Zealand we get the House Price Indiex and Electronic retail sales, new loans in China and the NAB Business Confidence Index which remains the best indicator for the Australian economy of any index out there. machine tool orders in Japan are due and tonight we get the ZEW survey in Germany and Europe. In the US its trade balance, economic optimism and wholesale inventories.

Please Note: All references to rates above are approximate and should not be used for trade reference.

 Catch me on Twitter @gregorymckenna or @FX_Global

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