We are back to action this morning and it seems we have missed nothing. This market has had very little to go on so far this week, action has been mostly fueled by rumor and hearsay. Certainly a good enough reason for a market squeeze to consolidation ahead of Fridayâ€™s payrolls. Later this morning, investor optimism is expected to rise as improvements are anticipated in US consumer confidence and the Case-Schiller housing index. Following on from Fridayâ€™s improvement in the UoM, traders are hoping that it could be the start of an extended run of improving data in a heavy â€˜shortenedâ€™ week for economic releases, ending with the grandaddy of economic indicators, non-farm payrolls.
To date, the US consumer appears to be somewhat immune to the whole Euro crisis. Last Fridayâ€™s UoM showed consumer confidence rising to its highest level in nearly five-years, a remarkable feat when considering that global confidence seems to be waning. This reaction would seem to suggest that the US consumer and investor is rather insular and isolated to â€œover there.â€ For the rest of us, we should be looking at this with hope, a confident US consumer is the engine of their economy. With crude prices falling, this has resulted in lower gas prices for the US consumer. This phenomena is probably the psychological tipping point for the consumer to feel less strapped for cash, cash which they can now put to work. The key, of course, remains employment. After two months of disappointingly small rises, hopes are that this Friday’s NFP will show more than the fairly modest +160k forecasted. This would certainly provide an additional boost to consumer confidence and â€œallay fears that the US economy is slipping back towards recession.â€
For Greece we are in a â€œwait and seeâ€ holding pattern. The market is waiting for the June 14 election and we are seeing what the polls are doing, pro-austerity or anti-austerity. Market buys EURâ€™s or sells the single unit. For Spain, its about damage control. Government officials are front and center, trying to install some of that lost Bankia confidence while their financial costs implode. This morning Spanish headlines are filling in the Bankia gaps. The headlines offer a little more visibility on how the Rajoy Government plans to deal with the financing issues of a number of regions and banks. This temporarily lifted the EUR, however, many more details need to be filled before the market can get that warm and fuzzy feeling again. Spain needs to succeed driving down its borrowing costs to capture the rest of that market confidence.
The immediate reaction to Spanish Government transparency was reserve names trying to pare their EUR short positions. However, with Spanish 10â€™s surprisingly widening another 2bps and the IBEX deep in the red would suggest that any EUR bounce may become just another price blip. Currently, all this market seems capable of doing is taking out the weak short stopâ€™s. The EUR lacks follow through, and thatâ€™s what you can expect from a market lacking in conviction. Yesterdayâ€™s chatter was all about a EUR follow through to 1.26 and change. With the lack of liquidity on show, a few expected to see the single unit stretch to the desired selling levels of 1.27. However, despite the retail sector accumulating more longs over the past 24-hours, currently sitting at just under +59%, all eyes are on 1.2490-95 below. There are reported good size stops below Fridayâ€™s low and further barriers at 1.2480 and 50 levels. Will US data be pro dollar or pro risk? The market is trying to keep faith in its trend.
Pos and Polls to Squeeze EUR