Recap 1-12-12

Main Items:

  • US Core Retail Sales declined -0.2% MoM in Dec vs +0.3% exp and 0.2% prev. Real Retail Sales growth is now at the lowest level since Aug 2010.
  • US Initial Jobless Claims increased to 399k last week vs 375k exp and 372k prev
  • ECB kept policy unchanged as exp. Statement was broadly inline.
  • MPC kept policy unchanged as exp
  • Spanish 3yr and Italy 1yr bond auctions were strong. Spain nearly 2x the 5bn target. Italy paid less than half what they paid a month ago for 12 month paper. It is likely that banks are bidding for ECB eligible collateral ahead of the next 3yr LTRO on 2/29.
  • Diplomats say Iran ready to discuss nuclear arms allegations during the next IAEA visit. As a result, the EU embargo on Iranian oil is said to be likely to be delayed by 6 months – AP

Overseas:

  • China CPI declined to 4.1% YoY in Dec vs 4.0% exp and 4.2% prev. PPI dropped to 1.7% YoY as exp vs 2.7% prev
  • French CPI was stable at 2.7% YoY in Dec vs 2.5% exp
  • Sweden CPIF declined to 0.5% YoY in Dec vs 0.6% exp and 1.1% prev
  • Japan Eco Watchers Outlook Survey declined to 44.4 in Dec vs 44.7 prev

Commentary:

I have noted in the past that speculative EUR shorts are at all time highs. This is important because fundamental EURUSD drivers are now bouncing. The chart below shows the EURUSD in white, the 5y interest rate spread in red and the Itraxx EU financials CDS index in purple. When rates and CDS last diverged from the EUR in Sept, it drove a 10 figure EUR rally. Watch for a EUR break of the 20dma, which is currently at ~1.2940

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4 thoughts on “Recap 1-12-12

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