Mid-Day Report: Markets Steady after ISM, Spain & France Bond Auctions

Markets remains steady today on the back of positive Spain and France bond auction. Also, ISM manufacturing data posted stronger than expected gain form 50.8 to 52.7 in November. Strong improvement is seen in production component (from 50.1 to 56.6), new orders (52.4 to 56.7). However, the positive report was darkened by deterioration in the employment component which dropped from 53.5 to 51.8. The price paid component rose to 41.0 to 45.0. US stocks are nearly flat since open. Dollar consolidates yesterday's sharp loss and remains in tight range.

Spain Treasury sold total of EUR 3.75b in bonds today, achieving the maximum target. Yield on the EUR 1.2b three-year bonds jumped from 3.639% to 5.187%. Yield on EUR 1.4b of four-year bonds jumped from 4.045% to 5.276%. Yield on EUR 1.15b of five-year bonds jumped from 4.782% to 5.5544%. France sold EUR 4.346b of long term bonds, close to maximum target of EUR 4.5b. Yield on 10 year bonds dropped slightly from 3.22% to 3.18%. Yield on 15 year bonds dropped dropped from 3.77% to 3.65%. Overall, the results are seen as positive by the markets.

ECB President Draghi urged to has a "new fiscal" pact to "enshrine the essence of fiscal rules and the government commitments taken so far, and ensure that the latter become fully credible, individually and collectively". And he emphasized "confidence works backwards". That is, with "anchor" in the long run, it's much easier to maintain confidence in the short term. Draghi's comment is seen by some analysts as an indirect reiteration of ECB's stance of being independent. Meanwhile, Draghi even spelt it out clearly that ECB's bond purchases "can only be limited". Data from Europe saw Eurozone PMI manufacturing revised lower to 46.4 in November. UK PMI manufacturing dropped less than expected to 47.6 in November. Swiss GDP rose 0.2% qoq, 1.3% yoy in Q3.

China's official Manufacturing PMI dropped more than expected to 49 in November. This was the first contractionary reading in nearly three years. Sub-index for new orders and new export orders were both very weak, dipped to 47.8 and 45.6 respectively. The data suggested deterioration in business conditions, both internally and externally. And the outlook justified the surprised move by PBoC yesterday, reducing the reserve requirement ratio by 50bps for the first time in nearly three years, to ease credit strains and help cash-strapped small companies. Economic data from Australia were also weak. Retail sales rose less than expected by 0.2% mom in October. Building approvals plunged by -10.7% in October. New Zealand's terms of trade index unexpectedly dropped -0.7% qoq in Q3.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9047; (P) 0.9149; (R1) 0.9233; More.

Intraday bias in USD/CHF remains on the downside for the moment. As noted before, USD/CHF's rise from 0.8567 should be finished at 0.9330 already, on bearish divergence condition in 4 hours MACD Deeper fall should be seen back to 0.8761/8960 support zone. On the upside, above 0.9251 is needed to indicate completion of such fall. Otherwise, near term outlook is cautiously bearish even in case of recovery.

In the bigger picture, at this point, we're treating rebound from 0.7065 medium term bottom as part of a consolidation pattern only. Hence, strong resistance is expected at next cluster level at 0.9916 (61.8% retracement of 1.1730 to 0.7065 at 0.9948, 61.8% projection of 0.7065 to 0.9315 from 0.8567 at 0.9958) to limit upside and bring reversal. Meanwhile, break of 0.8567 support will complete a double top reversal pattern (0.9315, 0.9330) and should mark the completion of whole rebound form 0.7065.

Economic Indicators Update

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