Intraday Market Thoughts

Appetite Rebounds, Italy Passes Austerity, CPI Next

by Patrik Urban
Dec 16, 2011 12:52

Italian Lower House approves austerity, German FDP support leaders backing ESM; Eurozone trade surplus decline; Euro stabilizes on improved appetite, AUDUSD above parity, gold above 1600, CHF consolidates yesterday's gains. Focus turns to consumer inflation, two FOMC members' speeches and Canadian international securities transactions.

Improved sentiment combined with position squaring helped to push riskier assets slightly higher throughout the London session. Relative strength winners are NZD and AUD. European indices are mixed between -0.4% to +0.5%.

Event though a referendum among chancellor Merkel's coalition failed to reach the necessary quorum, nearly 55% of those who voted supported party's leaders who back the ESM. German economics minister Roesler said that the FDP remains pro-European and that today's result is a victory for Angela Merkel.

On the data front, Eurozone trade surplus shrank in October to EUR 1.1 bln from previous EUR 2.7 bln. On seasonally adjusted basis it shrank to EUR 0.3 bln from EUR 2.2 bln as imports (+7%) rose faster than exports (+6%). Pro-export Germany saw a 1.7% decline in exports. EURUSD trades firmly above 1.30 but has not been able to break above 1.3045 resistance.

Euro is underpinned by narrowing 10 year spreads. Italy-Germany narrowed to 441 bps while Spain-Germany spread narrowed to 326 bps. However, German 2 year yields only 0.22% while its US counterpart yields 0.23% which may limit EURUSD recovery.

CHF has been consolidating yesterday's gains and continues to trade near its highs despite rumors of SNB selling after EURCHF peg was confirmed at 1.20. EURCHF trades around 1.2230 with reported large stop loss orders sitting below the figure.

The New York session will bring CPI due at 8:30 am ET that is expected to remain steady at 3.5% y/y (+0.1% from -0.1% m/m). Core CPI is also seen steady at 2.1% y/y and 0.1% from 0.1% m/m.

Canadian international securities transactions also due at 8:30 am ET are expected to rise to CAD 8.23 bln from previous CAD 7.35 bln

The market volatility could also increase at 11:15 am and at 12:00 pm when Chicago Fed president and FOMC member Charles Evans and Dallas Fed president and FOMC member Richard Fisher deliver their speeches.


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