Yo-yo headline trading remains the order of the day

The noise level on Europe remains defeaning and is chopping EURUSD and other markets to bits – when do market participants tire of this behaviour?

The noise on Europe and the EFSF remains a deafening din and continues to chop EURUSD both ways. The latest announcement that the Troika is urging that Greece (‘s creditors) promptly be paid the next EUR 8 billion tranche of their aid deal without further delay was apparently the trigger for the erasure of the sell-off late yesterday generated by the WSJ article suggesting that the nature of the EFSF could change from the proposed insurance scheme to one of guaranteeing a certain percentage of new bond issuances – kind of like changing the entire playing field.

The other issue of concern coming into today is Germany and France’s argument over the role of the ECB, with the latter arguing for a bank structure for the EFSF which would be a back door to support from the ECB, a solution that Germany is against, as it prefers the insurance route. Meanwhile, we have Estonia saying that it was against increasing the size of the Euro bailout fund, though it was in favour of leveraging it. Meanwhile, Slovenia joined Spain in having its debt rating cut due to its fiscal outlook. It’s a three-ring circus if there ever was one and it will certainly be a relief for traders to get to the other side of the G20 in Cannes, when the headline trading will hopefully cease.

Odds and ends
A small note of complaint here: Sweden’s data gatherers need to figure out a new way to acquire data on the Swedish job market, as the unemployment rate jumps around so frantically that it’s very difficult to draw a bead on the direction unless one averages several months of data at a time. How can the expected change have been for a +0.4% jump in the rate from one month to the next? Anyway, the better than expected data and risk-on stance has seen EURSEK a bit lower, as the piar proved some of the critical 9.08/09 area support, the last line ahead of the 200-day moving average just above around 9.0250.

UK Retail Sales were much stronger than expected on a month-on-month basis, but this was spoiled a bit by a downward revision of the previous months’ data (when we had the London/UK riots – which created an important one-off distortion), so not much to go on there on the positive side. EURGBP continues to trade more or less in line with the headlines on the Euro as well – relatively resilient GBP performance, really, given where EURUSD is trading – perhaps traders are unwilling to even consider buying through the huge 0.8800 area until the EFSF outcome is known.

US jobless claims are coming in around the 400k level fairly consistently – not good news, but it’s beginning to look a bit like a downtrend, which suggests relative stabilization in the jobs market for now until proven otherwise.

Looking ahead

The best thing we can look forward to is this weekend, when at least markets won’t be open while the latest attack and counterattack is taking place in the headlines. Unfortunately, the noise suggests the politics are far from being resolved and with lowered expectations for this weekend’s summit, we may be subject to another week of choppiness next week as well. The self-imposed deadline for a solution from the recent Sarkozy/Merkel meeting was “the end of the month” so we hopefully won’t have to wait until the following week’s G20 meeting to get the full skinny on how the EFSF will shape up.

For the real look ahead, please do have a look at the excellent chronicle penned today by our Chief Economist Jakobsen about the rest of this quarter and the timing of Crisis 2.0. It’s a great tool for having a framework for looking at the future. Deep stuff.

Look out for the US Weekly Bloomberg Consumer Comfort survey out shortly today, this weekly confidence survey dropped below -50 for the last four weeks running, the only other time this has occurred in the 30+ year history of the survey was during three episodes in late 2008 and early 2009. Also watch out for the Philly Fed and Existing Home Sales (the latter is interesting due to the recent news that short sales are becoming more common, so housing market turnover may be increasing here.) A passel of Fed governors are out speaking as well. Tomorrow we have the German IFO and the most vocal dissident of Bernanke-ism, the Dallas Fed’s Fisher, out speaking.

In the meantime, the weakness in Asia and copper is noteworthy – as is its ability to pound the Aussie for heavy losses, only to have those losses reversed by the least whiff of risk appetite in the European and/or US sessions. It’s a choppy world at the moment and it behoves all of us to be careful out there –tactically in particular.