Wall Street and commodities closed higher. However, it's the weakness in financial markets in Asian session today that reflects market sentiment towards the deteriorated situation in the Eurozone. Yield spreads widened significantly in a number of European countries including France. Auction of Spanish and Belgian bonds missed expectations and dataflow in the region continued the dismal tone. It's the relatively solid US economic data that held up the market on Tuesday. Retail sales came in better than expected while the Empire State manufacturing index also beat expectations. However, the broad market outlook will still be determined by the situation in the 17-nation region.
10-year Italian bond yield rose above 7% against although Mario Monti is expected to present the results of his consultations in European session today, suggesting a closer step to formation of a new government. Worse still, French bond yields also widened to the highest level since April. German bund yields retreated as driven by German GDP growth, exacerbating yield spreads. Spain sold 12- and 18-month bills worth of 3.16B euro, below the maximum target of 3.5B euro. The average yield on the 12-month bill rose to 5.022% from 3.608% at the previous sales on October 18. Belgium's auction also disappointed, selling 2.73B euro of the 12-month bills, compared with 3.2B euro planned.
In Greece, the opposition party continued to oppose the austerity measures needed to secure the EU bailout fund. Yet, Papademos reaffirmed that Greece's membership of the euro is 'a guarantee of monetary stability and creates the right conditions for sustainable growth'.
On the macro front, Eurozone's ZEW economic sentiment plummeted to -59.1 in November, down from -51.2 a month ago. The market had anticipated a drop to -55.3. The reading for Germany alone declined to -55.2 from -48.3. In the US, retail sales climbed +0.5% m/m in October, weaker than +1.1% in September but better than consensus of +0.3%. Sales excluding auto gained +0.6%, same as that in September. Empire State manufacturing index returned to the expansionary territory, rising to +0.6, in November from -8.48 in October.
The industry-sponsored API estimated crude inventory increased -1.3 mmb in the week ended November 11. Gasoline and distillate stockpiles, however, fell -2.9 mmb and -2.6 mmb respectively. The US DOE/EIA will probably show that crude inventory fell -1.5 mmb while gasoline and distillate stocks declined -1.5 mmb and -3.0 mmb respectively.
|Weekly change in inventory as of 11/11/11||Change||Consensus||Previous|
|Crude oil||+0.50 mmb||-1.37 mmb|
|Gasoline||+1.00 mmb||-2.11 mmb|
|Distillate||-2.20 mmb||-6.02 mmb|
Comparison between API and EIA reports:
|API (Nov 11)||EIA (Nov 11)|
|Actual||Inventory||Previous||Forecast (using API's inventory level)||Inventory|
|Crude oil||-1.50 mmb||341.30 mmb||-0.15 mmb||+1.84mmb||341 mmb|
|Gasoline||-1.50 mmb||204.19 mmb||-1.50 mmb||-2.08 mmb||204 mmb|
|Distillate||-3.0 mmb'||138.97 mmb||-2.88 mmb||-2.92 mmb||139 mmb|
API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks
Source: Bloomberg, API, EIA