European Closing Thoughts: "The Italian" vs Germany 0-0

Sometimes we need to price ourselves, this is what we wrote in our MidSession Review:

Rising Oil points towards rising equity benchmarks therefore if nothing change we could expect a rising euro and falling yields to close the cross assets divergence. But remember we are deling with probabilities nothing is certain here, a single headline can change the overall picture.

The single headline able to change the market picture did not crush the tape today; as a lawmaker attending Mr Draghi's briefing told Reuters in a text message from inside the room put: “So far I've heard nothing new from Mr. Draghi except for a strict monetary policy defence of his measures.”

Mr Draghi defence of the OMT verted on the following points:

• First, OMTs will not lead to disguised financing of governments.
• Second, OMTs will not compromise the independence of the ECB
• Third, OMTs will not create excessive risks for euro area taxpayers
• Fourth, OMTs will not lead to inflation.

Describing the market reaction in soccer terms the match finished 0-0, although the premises were not so rosy looking to German newspapers such as theBerliner Zeitung, which early in the day commented:

“An Italian is coming to Germany to assuage the fears of Bundestag members about inflation. Mario Draghi … can only lose this battle.” ”The Germans won't let their inflation trauma be treated by anyone, let alone a southern European,” added the paper.

At this point the FED is under the spotlight, most expected it to be a non-event following the central bank's aggressive easing action in September.

The Dow Jones industrial average was up 0.11 percent, at 13,116.90, the Standard & Poor's 500 Index was up  0.05 percent, at 1,413.78, the Nasdaq Composite Index was down 0.17 percent, at 2,985.32 as figures from the Commerce Department had new-home sales rising in September to a more than two-year high.

In Europe the broader Stoxx50 rose 0.51% to 2,490.58, the German Dax was up 0.27% to 7,192.85, the Spanish Ibex rose 0.57% to 7,791.50 and Italian Ftsemib led gainers trading 0.82% higher to 15,706.56.

Let's have a look now at Spanish 10-year government bond yields, as per our hypothesis yields fell 5.6 bps to 5.57 percent and the common currency closed the European cash session 0.32% lower versus the greenback to 1.2945$; at midday when we were putting the hypothesis on the table the Euro traded at 1.2943$ or 0.42% lower therefore it closed a bit higher.

But here comes the “dark corner”, Oil futures fell further dropping below $86 a barrel: as the EIA reported a bigger-than-expected rise in crude supplies for the week ended Oct. 19. Crude supplies rose by 5.9 million barrels. Analysts polled by Platts expected a 1.7 million-barrel increase in crude-oil supplies for last week.Following the latest data, December crude traded at $85.70 a barrel, down 97 cents, or 1.1%. It was trading around $86.52 shortly before the data release. For what it may concern the precious metal, Gold futures traded 0.32% lower to 1,703.90$ an ounce as traders looked to the FED for hints.

As we said often in our posts nothing is certain in this business, but today's markets behaviour showed us how important is to be flexible in our thinking and un-flexible in our risk management rules. Our hypothesis proved to be correct but we had our dark corner in the Oil market, but now you understand the importance to isolate an asset specific news such as the EIA report from the overall market.

Have a great evening.

Originally posted at www.77sigmatrading.com