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Market Recap: 11.29.2010

Courtesy of Tyler Durden

A summary of the day’s key developments in equities, vol, FX, rates, credit, and commodities. The biggest highlights of the day by far was that despite two POMOs, stocks closed once again red on a POMO day.

  • US equities recover nicely from early weakness as SPX bounces from well-flagged technical support in front of 1170. US financials held in well all session despite a poor performance from their European counterparts. Greece, Ireland, et al is still a European problem, it seems. SPX closes down 2 at 1188. The DOW closes down 40 at 11052. The NASDAQ closes down 9 at 2525.
  • The VIX sold off into the close to end the day down -.66 at 21.56, though still managed to hold above 21 for the second consecutive day.
  • FX markets vote ‘no’ to the Ireland package. The relief rally in EURUSD lasted all of 100 points before the pair reverses sharply lower, taking out its 200d (1.3130) in the process. Good leverage selling through that level. The pair stabilizes back above 1.3100 and vol pulls back modestly as stocks pare earlier losses, but this is hardly comforting to anyone still long EUROs and hardly discouraging for anyone short. The worry: extend and pretend is over in Europe. The corollary: liquidity fixes aren’t going to be enough. Elsewhere, most pairs take their cues from stocks so AUDUSD back above .9600 and USDCAD back below 1.0200. USDJPY trades in a very dull 30 point range in NY despite decent volatility in both fixed income and stocks.
  • The rates market finished 0.5 to 6bps firmer in a bull flattening move as the back end outperformed.  The rally was supported by equity weakness, continued worries over the European periphery situation, and the Fed buyback in the 2013-14 and 2021-2027 paper.  We remain cautious constructive on duration as risk aversion and continued fed buybacks should provide support to the market.  However, the shakiness from the last few weeks in global fixed income has kept conviction relatively low and positioning still feels generally long.
  • In commodities, energy was bid despite dollar strength, with Nat Gas the only loser, down -4.25% on milder weather forecasts.  Flow-wise, we saw leveraged selling of Nat Gas and buying of Jan crude.  Metals were similarly bid as traders fled into safer assets.  Silver continued to outperform gold, up +1.6%.  Cotton rose on signs that China curbing may have a smaller than expected impact on demand, up +3.5%.
  • Sovereign spread widening drove credit lower this morning although volume on the way down was light and the price action was relatively orderly.  Sellers of protection started to participate once equities reversed late in the day knocking spreads back down again but not quite as far as Friday’s levels.  IG closed at 96.75, +.75 bp’s and HY closed at 99.00, close to flat.
  • Tomorrow brings the Chicago Purchasing Managers’ Index and consumer confidence in the US, Korea CPI, Euroland unemployment and inflation, GDP for India and Poland, and Norway retail sales.

FX Focus from Talking Forex:

EUR/USD

The EUR remained under assault by the bears on Monday and the worst fears of the EU policy makers were confirmed after the attention of the speculators that pushed Ireland into activating the bailout mechanism turned to other peripheral nations. Apart from the Iberian peninsula, it was the uncertainty regarding Belgium which has had a caretaker government since the last election in mid-June that attracted the majority of the attention. Also, less than impressive demand for the Italian government paper saw the Italian long-term borrowing rates rise to the highest level in 18 months. The move lower saw the pair clear the 50.0% Fibonacci retracement level at 1.3228 and then break below the 200DMA at 1.3131, which coincided with the move higher by the USD index above the key resistance at 80.62 which is also the 38.2% Fibonacci retracement level. On Tuesday, much of the attention during London hours will be paid to the government paper auctions from Belgium, while later on the direction will depend on the USD related flow amid a slew of US economic data. In terms of technical levels, to the downside supports are seen at psychologically important 1.3000 level and then at the 38.2% Fibonacci retracement level at 1.2909.
 
GBP/USD

Amid renewed USD strength which rose on the back of the never ending uncertainty over the Eurozone meant that GBP was unable to post any gains against the greenback and finished the session near a 2-month low. However while GBP is clearly struggling to gain against the greenback, GBP’s so called EUR-hedge appeal saw the EUR/GBP cross move to a 2-month low which suggests that investors are speculating that the ECB may be forced into easing its hard-line stance and bring inline its policies with other major central banks. The move lower saw the pair clear the 61.8% Fibonacci retracement level at 1.5607 and remain firmly on track to make a test on the 200DMA at 1.5348 and the 50.0% Fibonacci retracement level at 1.5345. In terms of the price action going forward, GBP is expected to continue to gain against the EUR, while gains against the greenback are seen as less probable at this stage despite the Office for Budget Responsibility (OBR) raising its 2010 growth forecast.
 
USD/JPY

The pair finished the session higher amid renewed USD strength which rose above the key resistance level of 80.62 as uncertainty over the Eurozone continued to drive demand for the safe-haven currency. The move higher saw the pair clear the 100DMA, which indicates that the current upward trend by the pair may persist especially since the Eurozone sovereign debt crisis shows no sign of abating. Worth noting the latest comments from the BoJ’s governor Shirakawa who said that expanding the BoJ’s JPY 5trl asset-buying scheme is one policy option and that the central bank is watching currency moves with great interest

Compiled by Goldman, Talking Forex and Zero Hedge

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