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What moved all major stock indexes, EU Grand Delusions, What the ECB Didn't Say, & More

MONDAY

Major Asian indexes fell hard. The Nikkei's 2.35% dropped was seen as a normal consolidation after a nine-day move higher. China's Shanghai composite dropped 1.8%, on slowing services growth and concern about how state reforms might affect GDP.

European indexes closed mixed, modestly up or down, with Spain the big bullish exception, up 0.9% on Spanish composite PMI hitting a 65 year high of 53.9, and services PMI jumped from 51.7 in November to 54.2 in December , with activity and new orders rising at their fastest pace in six years, aided by discounting.

Aiding enthusiasm for GIIPS debt was that Ireland enjoyed both strong growth with a PMI reading of 58.6, and surging demand for its first sovereign bond offering since it exited its bailout program.

The big 3 US indexes all fell modestly on a combination of caution ahead of the big jobs data week and services ISM's missing forecasts. Factory orders beat expectations, but manufacturing isn't nearly as big an employer as the services sector.

TUESDAY

Asian indexes closed mixed, modestly up or down, following up on US stock market weakness Monday, for the same reasons, weak services ISM adding to the natural caution ahead of the big US monthly jobs reports week.

European indexes closed solidly higher on continued growing optimism about the peripheral economies brought buyers hoping to catch a rally in GIIPS stocks and bonds in its early stages. In contrast to German, US, or Japanese stocks being at new highs, Spanish stocks remain well below their pre-crisis levels. That makes sense, as long as one discounts the risk of a new banking crisis despite the fact that Spanish banks are as troubled as ever and the new SRM program for resolving bad banks provides no additional support.

See here for just how much we disagree with that assessment and why.

Feeding the optimism about the GIIPS, Ireland's first bond sale since exiting its EU bailout was a great success, with investors bidding over €14 billion for the new 10-year bond out of a planned 3 bln sale. Ireland limited the sale to just €3.75 billion in order to accommodate bond auctions in its funding program for the remainder of the year (and confident they'll get it at similar or better terms). Irish 10-year bond yields dropped 9 bps to 3.27%, their lowest in eight years, per Reuters historical data. In 2011 they peaked at over 15%. For full details see our special report Grand Delusion: Scramble For GIIPS Bonds Despite High Risk, Low Yield.

US indexes closed strongly higher on better than expected trade deficit data, which had economists rushing to issue raised GDP forecasts for Q4, given improved November consumer spending and expected improvements in residential housing spending, with home prices popping 11.8% in November per CoreLogic.

WEDNESDAY

Asia

Most major Asian indexes finished up 0.5% -1.94% led by Japan, on follow through from the strong US session after the US reported strong trade data. China, Korea and Australia closed slightly lower.

Europe

Most European indexes were up but the leading ones, the DAX, CAC, and FTSE 100 were down modestly. Spain led, up 0.74% on continued optimism on beaten down GIIPS stocks as peripheral yields fell due to encouragement from Tuesday's strong Irish bond sale and improvement in Spain data. Spanish 10-year bond yields fell to a new four-year low of 3.78% on Wednesday after the Irish bond sale. Note that Ireland has left its bailout program, whereas Spain may yet need one given that its bank problems have yet to be fully disclosed.

Volume on Portugal's PSI 20 benchmark stock index was seven times the daily average, as the strong Irish bond sale Tuesday, its first since leaving its EU/IMF bailout, raised hopes that Portugal will also exit its own bailout program this year as planned. Trading volumes on the main Madrid and Dublin indices were more than twice their daily averages, per Thomson Reuters data.

Peripheral eurozone stocks have seen hefty inflows recently, as the economies hit hardest by the bloc's prolonged crisis begin to show signs of improvement and the more intrepid investors are buying in hopes of catching one of the last remaining chances to buy low in developed world stocks, despite the risks we discuss here

US

The big 3 US indexes closed mixed, overall slightly lower, after recovering some of their after the FOMC minutes were seen as hawkish. Specifically they showed the Fed believes QE's benefits are decreasing over time, and believes that employment will continue to improve. A better than expected ADP non-farms payroll report for December raised expectations for Friday's official jobs reports, and thus reinforced the belief that the QE taper will continue, and raised the odds that it might accelerate. Friday's poor jobs report ended that idea for now.

THURSDAY

Asian indexes were mostly down hard on caution ahead of the US monthly jobs reports, a common move on pre-US jobs reports Thursday. Shanghai fell 0.8% following data that showed inflation subdued overall but PPI falling for the 22nd month in a row.

Europe's indexes finished solidly lower on worries about French debt, and the EUR fell due to the dovish tone of the ECB press conference. Didier Migaud, head of the French public audit office, said French national debt had reached a "danger zone."

US indexes closed mixed, Dow -0.10%, S&P +0.04%, Nasdaq -0.23% on typical caution the day before the monthly jobs reports.

FRIDAY

Asian indexes closed mixed with minor moves up or down, the only big mover among the major indexes was Shanghai, which fell 0.7%

The top European stock indexes all finished solidly higher, mostly up around 0.5%, lifted by a batch of good news for the coming European earnings season. Lufthansa (OTCPK:DLAKF) and Swatch (OTCPK:SWGAY) both suggested Q4 would be good. Markets shrugged off the poor US jobs reports because

· There's a bright side to them, they lower the chances of any QE taper acceleration

· Exceptionally bad weather was believed to be partly to blame

The big 3 US indexes ended mixed (Dow -0.05%, S&P +0.23%, Nasdaq +0.44%). Markets struggled to interpret the surprisingly weak jobs report, given how it seemed to contradict other reports that signaled an improving jobs picture.

  • Although the report may reduce the odds of an accelerated tapering for now, a single weak report that could be partly blamed on bad weather isn't likely to change the course of gradual reductions.
  • So with no anticipated increase in the pace of interest rate increases, rate-sensitive utilities led the gainers; the materials sector shrugged off the Alcoa's earnings miss after getting some support from miners (up as the poor jobs report reduced taper odds, weakened the USD, and so sent gold and other PM stocks higher) and steelmakers (who benefit from a weaker USD).
  • A batch of downbeat outlooks hit retailer stocks, with Sears (SHLF), Target (TGT) and Five Below (FIVE) all falling hard.
  • Given the mildly negative day, it's no surprise that US Treasury yields sank, with the 5-year note fell 12 bps to 1.623%, and the benchmark 10-year note's yield dropped 10.5 bps to 2.860%, concluding its biggest weekly decline since September.
  • Gold gained 1.4% to close at $1,246.90, a four-week high.

See here for a full analysis of the ramifications of Friday's bummer of a US jobs report.

Here's the weekly scorecard for the US indexes. As we note here these are decent gauge for the leading European indexes and for Japan, too.

Index

% Change

YTD %

DJIA

-0.2

25.4

Nasdaq

1.0

38.3

S&P 500

0.6

29.2

Russell 2000

0.7

37.1

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

Source: Global Stocks 2 Minute Drill: Top Daily Market Movers To Remember This Week