Weaker consumer confidence puts dampener on stocks

A weak consumer confidence number put the brakes on a relentless rise in the stock market as the eurostoxx crossed 2900 for the first time since last year.
Short sterling dropped over 15 ticks as Bank of England's King cites that he was unhappy at the market reaction to his recent comments regarding Pound Sterling level. This triggered a sell of the STIRs and a rise against the currency basket after getting smashed in the previous sessions.
Home prices rose for the third month in a row in July, new data Tuesday showed, more proof a fragile housing recover is under way.
The Standard & Poor's/Case-Shiller home price index of 20 major cities rose 1.2 percent from June to a reading of 143.05. Though home prices are still 13.3 percent below July a year ago, the annual declines have slowed in all 20 cities for the sixth straight month. This further aided the resilience of the global equities.
This Fridays US jobless number will be key this week as we see whether the DOW can push pass 10000. Expectations is for another improvement, with some estimating a gain in jobs.
Whilst the economy is slowly picking up the 60% increase in the S&P 500 from the march lows looks likely to continue as cheap money is fuelling more demand for equities and this looks likely to continue until rates start to rise.

Its deflation not inflation we should be worried about!

With economic data seemingly improving month on month, and inflation being kept in check, there is little to really stop this stock rally in its tracks. Despite the Federal Reserve's well-publicized and much-hated massive dollar creation, money supply actually fell in August.
Thus the Fed still has much room to keep rates ultra-low, which the Federal Open Market Committee will likely do at tomorrow's meeting.
Regardless of what many may fear, deflation, not inflation, remains the key danger to the US economy. Should the nascent US recovery sputter, this will become even more the case.

Continuing steepening along the Euribor curve seems to be the trade as bets for rate increases now are priced to occur in mid to late 2010. Front month spreads are creeping higher, and red month spreads are also increasing.

The technical outlook for the Bund is beginning to appear more bearish, the double top formation at 121.74 has held and the market has broken below monthly lows. Significantly the Bund broke and closed below a daily uptrend last Friday (currently at 120.37), and despite breaking back above it yesterday once again closed below. The downward pressure created from this technical break when added to the double top formation could easily lead the Bund down to daily support around 119.70 and then to the bottom of the larger consolidation zone at 118.57.

On the FX front, the US dollar remains weak with the EUR/USD breached 1.48. Cable remains mixed as we await the BoE minutes tomorrow, and in particular how close we were to a commercial deposit rate cut. If we have a close vote between the 9 members, it is likely Cable will be dumped, and a break of 1.60 is on the cards.

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GBP collapses as BoE hints quantative easing

Bank of England Governor Mervyn King said the central bank was looking at reducing the rate on commercial banks' reserves, fuelling speculation of further quantitative easing. This sent a bid to short sterling contracts, as well as a bid to front month spreads rose. The Pound was also under pressure as its fell to a recent low against the EURO not seen since late april with the EURO GBP trading almost 0.89.
Euirbor was also busy today selling off as strong retail sales showed further signs of a recovery. The curve continues to steepen, especially in the reds as it is expected that there will be gradual rate increases from next year.

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BoE keeps rates on hold

Another two central banks kept rates on hold, with the BoE keeping rates at 0.5% and the Canadian central bank also holding rates.
Much attention was put on whether the comercial bank reserve rate was too be cut to encourage more lending by banks rather then keeping it with the central bank, but this wasn't the case as the reserve rate remained at 0.5%. This lead to a pop up in sterling against other major currencies. This also lead to a sell off in short sterling.
On the Euribor front there has been steepening along the curve which has lasted for about 4 days. As rates in the near term are likely to remain on hold traders are pricing in a series of rate hikes next year. The Shatz-Bund spread has moved almost 200 ticks since last weeks rate meeting as long end yields rise.
It is likely that this curve steepening will continue as economic indicators continue to improve and stock markets are rallying.

ECB keeps rates on Hold

The ECB kept rates on hold yesterday and provided no real clues as to when it will start increasing rates again. The ECB kept its 1 year cash handout at 1% which was a hot topic as any change in rates would imply the next likely move from the ECB. However as rates remained unchanged this provided a pop up in the short end, as white month Euribors rallied, along with the schatz and the long end sold off.
Spreads across the curve increased making back ground after selling off before the meeting. Looking forward it looks like rates will be on hold for a while still as its is still too early to asses where we have fully recovered from the recession.
As far as trading is concerned, im looking to short the long end on new highs, but favour butterfly strategies more.
Stock have been hit hard of late but made a slight recovery as the selling pressure eases. However it doesn't look like it will last long as the volume to the upside is very low relative to the downside. It is likely we wont see any new yearly highs for stocks in my opinion, today's job number might be dissapointing after less then expected ADP number.

Stocks sell off despite strong data

An above 50 reading for ISM manufacturing and better PMIs in Europe failed to keep this rally going as yoyo swings throughout the day were finally won by the bears. After opening up initially higher markets sold off after rumours of Bank failures put jitters in the market place. Bonds in turn headed higher and the dollar strengthened.
Front month euribor spreads have come off 8 ticks from the high as it seems a rate hike hike wont be coming any time soon.
A sell off has been on the cards as we continued to rise, and now we have entered September, historically the worse month for stocks, traders pushed down this market on big volume, with some very big sellers in the Stoxx and Dax futures.
The fact that everyone is expecting a sell off this month suggests to me we may not be done with the upside yet, but if these bank rumours turn out to be true, we could be in for a wild last quarter.