Dec 10. European data continues to point to weakness; presents downside risk for FOMC Wednesday

–Slightly better than expected employment report Friday saw ten year yield edge higher to just over 1.62. NFP 146k but previous months revised lower. Curve in eurodollars steepened with red/gold up a bit over 3 bps to 115, barely even qualifying as a dead cat bounce on its way to new lows (recent low 112). In the very front end, EDZ/EDH settled at new low of -1. However there are new highs…in food stamp usage (47.7m).
–There was a late new buyer of 25k TYG 132.5p.
–Monti’s resignation is being blamed for a drop in Italian stocks this morning (-3.3%), though data out of France also symbolizes eurozone woes, with Industrial Production -3.6 year over year, and business confidence dropping. Spain and Italy yields are rising, though France remains under 2% at 1.95 in spite of looming budget and banking problems.
–Against the weak european backdrop comes the FOMC announcement Wednesday, with the market expecting additional QE of $40B month as twist expires, essentially monetizing all new treasury supply.
–In the US I have seen several stories recently about slowing sales at restaurant chains, which are considered by some analysts to be a major indicator of true consumer strength. For example David Rosenberg notes that spending on eating out “peaked at +5.7% yoy in July and has since slowed to 4.4%, the softest pace in eight months.” In this holiday time of noise regarding retail sales/consumer spending, perhaps it’s reasonable to focus on this canary in the coalmine. Below is a one year chart comparing SP500 with the Dow Jones restaurant and bar index.

http://bigcharts.marketwatch.com/industry/bigcharts-com/industrychart.asp?timeframe=OneYear&compidx=SP500&symb=&industrySymb=DJUSRU&x=30&y=11
[Click to Resize]

Posted on December 10, 2012 at 5:51 am by alexmanzara · Permalink
In: Eurodollar Options

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