Intraday Market Thoughts

Euro Set for Another 1.35 Break

by Patrik Urban
Dec 1, 2011 12:37

French and Spanish auctions well received; Swiss Q3 GDP disappointed; Swiss PMI declined; German and Eurozone PMIs as initially estimated; UK PMI declined. Focus turns to jobless claims, November ISM manufacturing and construction spending. 4of the 17 Premium Trades hit all targets. See details below.

Risk assets are consolidating after yesterday's "central banks coordinated liquidity injection" rally. USD has a negative bias but is losing only slightly against other majors. Relative strength winners are CHF, EUR and NZD but not by a significant amount. Major European equities are mixed between -0.7% to and 0.4%.

Euro is underpinned by well received French and Spanish debt auctions of various maturities. Spain reached its full target of EUR 3.75 bln with yields only slightly higher and improved cover ratios. France sold EUR 4.35 bln out of EUR 4.5 bln target and saw some yields actually lower compared to the previous auction. Bid to cover for all French bonds that were offered today improved rather significantly. EURUSD continues to trade just under the 1.35 mark.

Final November manufacturing PMI's from Germany and the Eurozone were unchanged compared to their initial estimates at 47.9 and 46.4 respectively.

Swiss Q3 GDP disappointed when it printed 0.2% q/q from previous 0.5% which translates to a mere 1.3% growth y/y from 2.2%. This is the weakest quarterly print since Q2 2009 and reinforces fears of a Q4 recession. A significant decline in exports is blamed for the slowdown which could pressure the SNB to increase the EURCHF floor, perhaps on SNBs meeting on December 15th. Swiss SVME PMI declined in November to 44.8 from 46.9. CHF has ignored this news and trades at 1.2275 against the EUR.

In the UK, November PMI printed 47.6 which is the weakest result since June 2009 and slightly lower than October's 47.8. Outlook is bleak as export orders fell after the crisis curtailed demand which subsequently prompted additional job cuts. Continued contraction is likely to increase pressure on the BOE to enlarge the Asset Purchase Facility further.

BoE released its Financial Stability Report that stated that the current environment is exceptionally threatening for UK banks and Eurozone sovereign and banking risks pose the biggest threat to UK financial stability.

4 of our 17 Wednesday Premium Trades hit all targets, 1 remain unfilled, the rest are in progress. For Direct Access to these trades is found here: NonSubscribers can join here:

The New York session starts with jobless claims at 8:30 am that are expected to remain for the fourth week below the 400K mark and print 390K from previous 393K.

November ISM manufacturing is due at 10:00 am and is anticipated to rise to 51.5 from 50.8. Construction spending in October is seen higher at 0.4% from previous 0.2%.


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