Maximum intervention opportunities abound next week

A quiet data week just gone in the UK, with a dismal Confederation of British Industry's orders report and business optimimism readings massively over-shadowed by the conclusion of the EU summit whose modest achievements apparently exceeded even the market's wildest dreams, to judge by the euphoric reaction to same. Nice promises, little substance and a recipe for recession, if not depression, in Europe next year. Hurrah indeed! Signor Draghi, the new President of the European Central Bank, is going to be a busy man when he starts next week.

Weak Italian bond auctions
Illuminating to note that the Italian 10-year debt yield is now trading at just about the same level it was before Wednesday's grand plan announcement and today's bond auctions were really pretty weak. They were only able to push the 2022 bond out of the door by paying 6.06 percent. As my friend, the excellent Alexei Jiltsov of hedge fund Blacktree Investments, points out to me, every asset is higher, apart from the ones they were targetting!

Beefing up EFSF
I would be surprised to see much of a general sell-off in risk before the outcome of next week's G20 meeting is announced, (4 November), as I, and the market, are now looking to the BRIC's (Brazil Russia India China) - though in this case probably just China - and maybe the International Monetary Fund, to invest in the Eurozone, thus helping beef-up the European Financial Stability Facility. In fact, if they don't, I think we will see an immediate market spasm.

More maximum intervention
Also next week watch out for more 'maximum intervention', as we have termed it at Saxo Bank, in the shape of the Federal Reserve meeting on Wednesday, which may well bring encouraging allusions to QE3, (especially so, as there is a post-meeting news conference). The next day we get the ECB meeting, giving Draghi the chance to join the 'rate' party (50 percent chance of a 25bp cut, I'd say).

European pipedream
If the G20 does bring the announcement of extra global help for EFSF expansion, and central bankers also play ball, then the risk rally can continue for the rest of the year, but before long the realisation that never-ending austerity and fiscal prudence throughout much of Europe is a complete pipe-dream (which is never going to happen) will hit home - sending the markets into another tailspin, probably in the first quarter of 2012.

UK data ahead
The coming week brings interesting UK economic fare, in the shape of Advance Q3 GDP, (expected +0.3 percent), and a Purchasing Manager's Index-fest; Manufacturing, Construction and Services. The latter should bring us nicely back down to earth, as they will be flirting with the key 50 level.