Recap 10-11-11

Main Items:

· In a joint statement the Troika made an overall positive assessment of the Greek package paving the way for disbursing the next tranche of the program.

· US NFIB Small Business Optimism improved to 88.9 in Sept vs 88.8 exp and 88.1 prev

· The new German ECB board member Asmussen reportedly supported the ECB’s purchases of government debt in the secondary market as a temporary crisis measure in testimony at the EU parliament.

· Alcoa kicks of earnings season tonight after the close.

Overseas:

· UK IP declined -1.0% YoY in Aug vs -1.1% exp and -0.7% prev

· RICS House Price balance was unchanged at -23 in Sept vs -24 exp

· Swedish CPIF decreased to 1.5% YoY in Sept as exp vs 1.6% prev

· AU NAB Business Confidence improved to -2 in Sept vs -8 prev

· Japan Eco Watchers Outlook Survey declined to 46.4 in Sept vs 47.1 prev

Commentary:

Market reaction to yesterday’s rally appears mostly to be of dismissal. Sentiment appears to remain bearish, which suggests additional upside for risk assets. In particular, I think Merkel and Sarkozy’s announcement to announce bank recaps, as convoluted as it is, will allow to market to temporarily dismiss the news flow coming from the periphery, and thereby allow participants to focus on the data, which has been pretty decent in almost every G20 country outside the Eurozone.
With major equity indicies all near the top end of recent ranges, going long (or staying long) on a break of resistance appears to be a good bet. In addition, 10yr yields in US and Canada looks particularly vulnerable at these yields. Model outputs suggest that they are several standard deviations rich, and only make sense using unsustainably low inflation and growth assumptions. As economic data surprises have begun to turn positive across the G10, there is a good chance that we can see a sharp correction in US rates going into Thanksgiving.

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