Notes From Underground

After today’s violent market reaction to a wounded Mario Draghi (more on that later),the consensus numbers for tomorrow’s U.S. jobs data will render the December interest rate rise by the FED a certainty. The STREET is estimating  around a 205,000 increase in nonfarm payrolls and a 0.2% increase in the very important average hourly earnings (AHE). IF PAYROLLS ARE BELOW 100,000 or IF AHE IS FLAT OR NEGATIVE THEN THE FOMC MAY BE RETICENT TO RAISE RATES AT THE DECEMBER MEETING. A gigantic upside number of more than 300,000 would not be big enough to increase the possible rate rise or even change the Fed’s sense of raising faster than the market already anticipates. It is definitely a one and done until some of the present uncertainty in the global financial system clears. This is a very reluctant move by the FED, especially now that the Germans have increased the pressure on Mario Draghi and the ECB.

As much as the global equity markets are synchronized, the EUROPEAN AND U.S. markets showed their symbiotic relationship as being very as important when the lack of a monthly increase in ECB QE purchases caused yields to rise in Europe, which resulted in a massive sell-off of 10- and 30-year Treasury debt. If the ECB is not increasing monthly purchases by as much as the market anticipated then there will be less cash available for purchases in other sovereign debt issues.

KEY: The ECB caused the world to rethink much of its consensus as the VOTE AGAINST DRAHGI. It is rumored that the Germans antipathy to more QE led to FIVE VOTES AGAINST EXTENDING THE QE DURATION AND THE CUTTING OF RATES ANY FURTHER. Bundesbank President Jens Weidmann has gained his voice and with Chancellor Merkel’s popularity declining look for others in Germany to begin to raise their voices against the financial repression being cast upon German savers. BUT BE VERY CAREFUL TRADING THE EURO AND EUROPEAN DEBT BECAUSE IT IS EARLY IN THE MONTH AND THE ECB HAS A GREAT DEAL OF AMMUNITION (or 60 billion EUROS of assets). THE DRAMATIC DROP IN EUROPEAN BOND FUTURES MEANT THAT THE ECB DID NOT TRY TO STEM THE RISE IN YIELDS. WHY? Because Draghi wanted to punish the supposed FIVE NO VOTES that thought a failure of increased QE was going to do grave damage to financial markets.

Also, why should the ECB try to catch a falling knife when it always believes in causing pain to speculators. AGAIN, I WARN ABOUT THE ECB’S INTERVENTION POLICY AND ITS ABILITY TO DISRUPT MARKETS. On November 24, Bloomberg News posted a very significant article, “ECB SAYS QE PROGRAM To BE Suspended Over December Holiday Period.” The opening sentence is critical: “The ECB will step up its asset purchases in December to compensate for an almost-two-week pause over the holiday period.” Further, “… purchases during the Nov. 27 to Dec. 21 will be somewhat front loaded to take advantage of the relatively better market conditions….” Any day of increased purchases will result in bond, equity and dollar rallies. Volatility will unsheathe its sword  in a market subjected to holiday conditions. Stay lean and mean and don’t be married big ideas … YET. But stayed tuned to NOTES FROM UNDERGROUND for further changes in the financial rubric.

***As time marches on, European landscape is only going to get more muddled. GO BUY A COPY OR TWENTY OF THE ROTTEN HEART OF EUROPE BY BERNARD CONNOLLY FOR SALE FROM AMAZON AT $8.00 or directly from me for $10.00 including shipping. It will help bring some clarity.

Tags: Bundesbank, ECB, Euro, Jens Weidmann, Mario Draghi, QE

This entry was posted on December 3, 2015 at 7:45 pm and is filed under ECB. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.