Tuesday, November 1, 2011

"Risk Off!" as Student Body Left Returns to Selling as Focus Returns to Italy

$1.4 Trillion of bailouts does not buy what it used to. 

We are stuck in this tiring world of "risk on" or "risk off" trading where everything must go up or down en masse.  A world full of ADHD traders who grew up on Ritalin.  After nearly a month of "risk on" markets are headed for the second day of "risk off".... with bells on.  S&P futures are being crushed, with prints down to the mid 1220s, which would be a clear break of the 200 day exponential moving average, but frankly as of late technical support and resistance has meant little as news flow means everything. 

The past 48 hours has seen a sharp focus on the woes in Italy as even the slightest reform is like pulling teeth, and despite ECB buying yields on debt continue to jump.  If not for the European central bank, we'd already have a mega mess in that country.  European markets are getting blitzed as expected (Germany down over 4%, Italy over 5%) as the world is all now one correlated trade.  Also of note is the Greeks going to vote later in the year on whether they actually want to be rescued.  It's all sort of funny at this point.

  • Greek Prime Minister George Papandreou called a referendum on the euro area’s latest bailout package, saying voters will give him support to proceed with economic reforms.  Papandreou’s gambit risks pushing the country into default if voters reject the financial accord. An opinion poll published on Oct. 29 showed most Greeks believe the euro area’s expanded bailout package and debt writedown are negative.


Meanwhile back on the economic front, we reported the official Chinese PMI last night - later in the day the HSBC report came in slightly firmer at 51.1.  While the rest of Asia got hit overnight, as I mentioned last night, the easy money lovers could find solace in the figures since it might mean (wait for it) more intervention, and the Shanghai index actually closed with a slight gain. 

Speaking of intervention, the Australian central bank lowered rates for the first time in 2 years. 

We also do have PMI's being released in Europe - the UK figure is very ugly at 47.4 vs 50.8 the previous month, and expectations of 50.2.  This is the worst reading in two years.  The new orders sub index came in at 44.1.  (for those unfamiliar with how these work, 50 is the line that separates expansion from contraction)

U.S. Manufacturing ISM is on tap at 10 AM - expectation is for a reading of 52.

On the "plus" side, since Bernanke seems to think the stock market is the economy, maybe this new turmoil will increase the chances of QE3 announced tomorrow rather than at the next meeting!

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