Not a surprise considering the news out of Europe this morning, and so it goes that bond prices in Italy and Belgium have gone up more than 1% and as such driving down their yields.  France, Spain, and Ireland saw increases in bond prices as well but not as dramatic.

By the way here is what bond yields recently have looked like worldwide.  Truly an amazing picture!

Government Bond yields:  10 Year Notes

1. The International Monetary Fund could offer Italy between EUR400 billion and EUR600 billion in financial support to give Italian Prime Minister Mario Monti a window of 12 to 18 months to enact reforms sufficient to restore waning market confidence in Italy’s ability to repay its debt, Turin daily La Stampa reported Sunday, citing IMF sources.

2. German Chancellor Angela Merkel and French President Nicolas Sarkozy are planning more drastic means – including a quick new Stability Pact – to fight the euro zone sovereign debt crisis…..Euro-zone countries are weighing a new plan to accelerate the integration of their fiscal policies, people familiar with the matter said, as Europe’s leaders race to convince investors they can resolve the region’s debt crisis and keep the currency area from fracturing

3. The European Financial Stability Facility may insure bonds of troubled countries with guarantees of between 20 percent and 30 percent of each issue to be determined in light of market circumstances. The proposal to attach guarantees of up to 30 percent of future EFSF bond issuances’ worth may create a threefold expansion of the 440 billion-euro ($583 billion) fund.

Runner-up! Black Friday retail sales up 7%

Update 7:30 p.m. EST.

The good news continues…

The biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries. Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates.

Follow Euro trading here:

http://www.sgxniftydowfutureslive.com/index_files/DOWFUTURES.htm

http://www.forex-markets.com/quotes.htm

http://www.kitco.com/ Scroll to bottom for exchange rate.

http://www.xe.com/

To see how FTSE will open go here:

http://www.igindex.co.uk/

or here:

http://www.financialspreads.com/public/

I leave you with this if you are like me and a market junkie!

So FTSE closed down 12 today, yet the FTSE spread betting for open tomorrow already has them down about 30 for open tomorrow.. not a pretty picture.. you can watch this live and then switch to 6 p.m. when our futures open!

http://www.igindex.co.uk/

A clandestine meeting at an inaccessible schloss just west of the Austrian border.  We take you now to  a storied hall deep within:  SPECTRE was there, that fabled organization bent on world domination, as were several Bilderbergers and, a couple of gentlemen whose politics lean slightly to the right of the Reichstags of old.  Plans for the complete renovation of Europe were beginning to come to fruition.

“We must quicken the pace now that the tipping point has been achieved.”  Instructed one slightly nasal voice, a man who was known to speak in sharply appointed tones.  And rightly so fore he was known simply in these circles as First Speaker.

“Greece has fallen time to move up the timetable on Italy!”

There were quizzical looks  -furtive glances between some of the junior members.

 ”Wasn’t Spain to be the next target?”, one pipsqueak voice piped.  Its owner, from across the sea was not versed in the subtles of intra-European affairs.  The penchant for revenge.  The enormous capacity for enmity; the zeal with which the payback for ancient treachery was eagerly awaited.  This was not business, it was personal! 

The first Speaker pounced, “Spain was never a problem.  With 46% of their youth unemployed and over 30% of adult workers on part-time assignments, we already have a teeming populace; bent and broken-willed by the housing collapse and the on-going recession.  At any time we can turn them.  Mold them to our purpose.

Now is the time to strike at the soft under-belly, let the French know that they are next!  Let them know that:  WE ARE COMING!!”  The first speaker stopped short, his ringing proclamation echoed around the massive stone structure, dying in the distance.

“What is it that you propose?” , a slightly nervous middle-aged female asked tenatively.

“We bring in the hook.”, came the sharp reply.   “The final hammer blow.”

The woman quivered.  “You mean, we have achieved?”

“Yes Contagion!”, triumphant shout.

“Do you mean to say…”  A tall, much too pale, gnomish figure began to venture before being abruptly silenced by the architect of this diabolically clever scheme.  The First Speaker continued on the plan of his creation… “Yes, we will now have the bond guys up the ante on Italy.  The interest rate on Italian bonds will soar past 8% and the government will collapse, leaving their economy open wide for our attack.”

“What if Berlusconi steps down and appoints a unification government?”, ventured another senior member of the cabal.

“That won’t happen.”  The First Speaker assured knowingly.  “No transitional or unity government.  Just a three month power vacuum followed by general elections.  This is a recipe for chaos!”  He smiled, then concluded.  “He was the only thing holding the place together.  You know they’ve had sixty governmnets since World war II.  No one ever lasts five years.  The whole show will fall.”  [AND ALL THE MARKETS WITH IT!  ED.]

“Well that sounds like a plan.”, offered a heretofore quiescent voice from the shadows.  Now to fund my re-election campaign.  Everybody got their shorts in place?”  A general nodding of agreement from the amorphous grouping.

“Good then 2012 looks like it will be our year.  As the recession cascades around the world it will be time for a New Europe to rise from the ashes of the Common Market decoupling.

“TO A NEW EUROPE”  SOUND OF GLASSES CLINKING TO THE COLLECTIVE TOAST.

 It seems someone has been reading my posts and taken my prognostications one step further:  current head of the IMF said today: [ Courtesy Reuters ]

Christine Lagarde, head of the International Monetary Fund, told a financial forum in Beijing that Europe’s debt crisis risked plunging the global economy into a Japan-style “lost decade.”

“Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand … we could run the risk of what some commentators are already calling the lost decade.”

 My prediction [ 11 /1/11 ]“If the EFSF and bank bailout funds are insufficient in the markets’ opinion, first target will be the European insurance companies, holders of these bonds!  And thus the game begins again”. This is not the recipe for bringing Europe out of recession. This sufficiently adequate backstop and continued pressure for evermore austerity will consign Europe to slow growth at the core, at best, for the foreseeable future. [ I was attempting tact].

For a country trying to export itself to prosperity, we seem to have the trend wrong.  The trade deficit for January 2011 increased by $6 billion as imports outpaced the growth of export at a faster rate than in prior months.  This will have a negative impact on Q1 2011 GDP forecasts.   Although well off its 2005-07 highs, the trade deficit is nearly 50% greater than it was just a year ago. Additionally China reported their first trade deficit in seven years which begs the question who will be the source of increased US export growth?

The current market action is eerily similar to that of the April 2010 highs and subsequent correction. Granted Fed QE is still in operation unlike April, yet POMO is beginning to show less ability to move markets. The key comparisons are as follows:

• In both run ups to the high, the middle bollinger band was not tested until just before the top was in.

• Both runs up did not touch the lower bollinger band at all during the move up.

• Both tops showed massive divergence on the MACD

• The move that pierced the middle bollinger band in both run ups was a massive red candle down. The candle on Friday was more powerful than the similar candle in April for it set a new high, failed to hold that high and closed on the low. Both candles also found support at the prior low where the middle bollinger was first tested.

• This is the key in understanding where we go from here. After the big red candle back in April, the next two days did move up, yet failed to make new highs before finally rolling over. Looking at the Asian markets right now and the ES futures, we may be in a similar attempted move up.

Personally, I think enough damage has been done from a technical standpoint, combined with questionable macro news (UK starting a new recession for example, US missing GDP on Friday, etc). I think many are not fully understanding what is happening in Egypt. To me it’s not an Egypt story. No, I think it’s a global revolution story. People have been oppressed for years and have finally had enough. Bears may be emboldened again should the market attempt to move up. It sets up a great trade with your stops at the prior highs should the market experience a move up the next few days.

The majority are expecting the market to move down on Monday, I would imagine and we know how that never works out. Even with the Fed and POMO and a market that always seems to catch a bid, the risk reward here favors the short trade to purely cash trade in my opinion. I remain short and hedged via credit call spreads but until a clear direction is shown, I won’t be adding to my current position.

Bonds spreads continue to reach new highs per the chart below (courtesy of Calculated Risk and the Atlanta Fed)

Riots in Greece and Ireland and don’t forget those “rumors” of Berlusconi having yet another affair with a 17 year old apparently moving up Italian CDS rates.  In the dash for trash the EUR v  USD perhaps it’s time to start selling the EUR.

Bulls are celebrating ISM Manufacturing and Services reports showing expanded growth (above 50 is expansion, below contraction). Looking inside the report shows some troubling signs though, primarily prices paid. As the USD has continued to get slammed the past few months, input costs have continued to rise. In this current economy, producers do not have pricing power on non essentials to pass along those higher prices. The result is their margins have been and will continue to get squeezed. To combat tighter margins, employers will begin laying off “non-essential” employees. New Orders in both reports have shown increased strength which is certainly a good sign for future ISM reads but is this solely due to the weak USD helping exports? Just like the EUR/USD was going to parity back in the summer, everyone is talking the end of the USD right now as the reserve currency. At some point that may very well be true but a reversal in the USD will put pressure on future ISM reads. Sovereign debt concerns have not passed, just kicked a little further down the road. Dec. 7 is national run on the bank day in France, which has now spread to a handful of other countries all as a result of austerity and another form of protest (important to remember EU banks are leveraged 10 times US banks). Don’t be so quick to favor the EUR over the USD. Both currencies are bad but it’s a lesser of two evils scenario right now.

So the ISM manufacturing and services both were positive signs for future growth of the US economy but need to be taken in context of what is driving them.