It looks like we had a good reason to not change our short stance: data this morning in Frrance’s manufacturing sector showed business morale slumped to its lowest level in over two years, but this is something investors expected, the sparkle came from a downgrade of five Spanish regions by Moody’s including Catalonia, the next to hold regional elections on the 25th of November, which accounts for a fifth of Spain’s economic output but whose debt caused the region to request a state lifeline of just over 5 billion euros.
The downgrade sent Spanish 10 year government bond yields 8.7 basis points higher to 5.58 percent, and the euro 0.70% lower versus the greenback to 1.2968$. If you went through our today’s Morning Meeting you knew that yesterday assets like: the common currency and the Spanish bond yields, were diverging therefore giving a strong “be careful” signal.
While markets are still waiting for a bailout request from Spain to trigger the ECB’s new bond buying program, the ECB Executive Board member in waiting Yves Mersch told audience in Berlin,according to Reuters, that: while there was no limit in terms of the amount of bonds the ECB could buy, there was a time limit. The comment highlighted that someone is losing his patience, i do not think that Mr Drighi liked the comment because it works agains his Bond Strategy (search the site for the Maradona theory of Bonds).
While Europe was facing the Spanish Dilemma in US United Technologies, Du Pont and 3M added to the gloom after all reported either week earnings or outlooks.
The result is the following market picture: Stoxx50 1.77% lower to 2,486.28, German Dax 1.72% lower to 7,202.27. In Southern Europe the Spanish Ibex lost 1.69% to 7,744.20 and the Italian Ftsemib shed 1.73% to 15,592.06. Resource stocks were under pressure as oil and gold and other metal prices fell sharply in line with the risk-off environment.
Gold for December delivery dropped $16.10, or 0.9%, to $1,710.20 an ounce in electronic trading on Globex as investors sold stocks and commodities to by US dollars seen as the only safe investment at the moment. December Crude, which became the front-month contract when the regular Nymex session ended on Monday, traded 1.85% lower to $87.03 as further deterioration of general market sentiment is perceived by oil traders as the biggest risk factor for the oil price.
Minutes before the US opening bell traders are questioning the move, remember yesterday US recoup caught a lot of traders on the wrong side of the market, an hint: keep an eye on the newstape for headlines on the forthcoming FOMC.