3 Numbers to Watch: ITA auction, US Chicago PMI, Pend. Home Sales
While the fiscal 'cliffhanger' (sorry) is obviously dominating the markets and today's calendar is light, there are still some numbers to keep an eye on.
Italy Bond Auction (10:10 GMT) Italy’s treasury will auction up to EUR 3 billion of both 5- and 10-year bonds. The bond yields in the secondary market rose slightly on Thursday, as participants made room in their inventory for the fresh issue. The market’s consensus view is that the treasury has ensured that there will be enough domestic demand for the auction. Things to watch for are bid-to-cover ratios (how much total demand there is for the issue) and the coupon rates of the two bonds. My guess is that the numbers will look good, and build up confidence that the euro crisis is currently under control.
The treasury has previously indicated that in 2013 it will move to longer maturities, which makes sense as the yield curve is currently much lower after the European Central Bank's pledge to do “whatever it takes” and possible OMT support in case of an emergency. The treasury has also stated that it will continue catering for retail investors, and inflation-linked bond issues that can be purchased over the Internet in retail-friendly amounts will be seen next year as well. It should be noted that moving to longer maturities would lessen the need to constantly roll over the debt with new issues and thus also minimise the treasury’s interest rate risk – i.e. being forced to roll over debt during times of higher interest rates. The average maturity of Italian government debt is around 6.5 years, down from around 7 at the end of 2011. It is estimated that the treasury needs to borrow around EUR 420 billion in 2013, which is about 10 percent less than in 2012.
The chart below shows Saxo Bank's CFD March price for the Italian 10-year bond and EURUSD spot rate. Bond prices and EURUSD mimic each others' moves.
US Chicago Purchasing Managers’ Index December (14:45 GMT) is expected to show a slight increase to 51.0 from November’s 50.4, keeping above the 50-level that marks the break-even line between an expanding and contracting manufacturing sector. The last couple of months have shown signs of stabilisation and the short-term trend is now up, but at very weak levels. A quick look behind the mainline numbers show that the stabilisation is due to higher production, but the new orders have remained at low levels. This would normally be a bad sign, but currently fear of the fiscal cliff is obviously hurting activity. This regional PMI survey is thought to be somewhat helpful in estimating the national data released next week, as the Chicago-area has a good representative mix of different industries and services (including defense contractors). The November report’s press release (pdf) has charts and data tables.
US Pending Home Sales November (15:00 GMT) To conclude the ending year’s housing data this index from The National Association of Realtors is expected to show a monthly increase of +1.2% (after October’s big +5.2%). The index tracks home sales in which a contract is signed but the sale has not yet gone through, so it is an excellent leading indicator of future existing home sales, with a lag of four to six weeks. As usual, Sandy and the fiscal cliff threat depress the number, but consumer sentiment was at elevated levels in November, so the risk of a negative surprise is seen as small.
3 Numbers to Watch is published Monday-Friday on TradingFloor.com. You can choose to be notified whenever a new piece is ready if you become a TradingFloor member - it's free, and you can sign in with Twitter, Facebook, Google or LinkedIn. You can also follow all the news from our macro team on our Macro Page.