Enis’s Macro Wrap – Micro Over Macro

by Enis October 11, 2012 8:02 am • Commentary

Last night’s S&P downgrade of Spain had our Twitter feed buzzing with commentators talking about the return of the Euro-crisis, and the thought that the market would test Draghi’s commitment.  But by the time Spanish sovereign bonds opened for trading at 2:00 am New York time, the SPX futures had recovered its initial headline losses (which were modest anyways, about 4 points), and the Spanish 10 year bonds sold off less than 1% before recovering to trade near flat.  The intraday graph of the 10 year Spanish bond:



As I wrote last month, the market is now much more focused on micro developments rather than macro developments, in stark contrast to 2011.  The central banks have made their moves, and the moves were made with such strong language (like “unlimited”) that traders have little incentive or desire to test them.  As a result, the main variable for risk assets is not systemic risk.  It is fundamental value.  For stocks, that means corporate earnings.

Markets overnight:

  • Asia finished broadly in the red, though recovered off its lows near the open.  Japan has been especially weak in the past month, down 0.5% overnight, close to joining the Shanghai index as one of the few major stock markets in the red on the year (measured by the Nikkei, the Topix is already red).
  • Europe rallied right after the open as buyers stepped in after the region has been down 3 straight days this week.  SPX futures have moved higher in lockstep, indicated up 0.3%.
  • The dollar initially rallied on the Spain news, but has since sold off vs. most crosses, and is now down about 0.3%.  Similar price action in Treasuries.  Commodities are broadly higher, with the exception of the grains.
  • Jobless claims the main economic data point today, and a bit quiet on earnings before WFC and JPM tomorrow morning.