03 February 2012 – “ Should I Stay or Should I Go ” (The Clash, 1982)

03 February 2012 – “ Should I Stay or Should I Go ” (The Clash, 1982)

The relief felt after my doctor worked on a severe calcific tendonitis by pulling a voodoo stunt with half a dozen needles into my shoulder, hence the absence of Wrap yesterday, leads me to the relief levels attained lately and on which we are wobbling since. Since, the Risk Mood gear is stuck in neutral (to positive). Give or take, most risk indicators are now on a 6-month high with exception of the EUR, which last summer was still trading anywhere between a (large) range of 1.45 and 1.35. Note that Gold has been faring well, too, after giving in to growth / deflation despair, coming down from a 1900 high to 1530s (a pretty precise -20% down), before bouncing back to 1762, having escaped the bear market on the reflation attempts of the world-wide central bank community. Brent has pretty much undergone the same movement. Copper, too.

So, where next? Real rebound or bear market rally? Buy, hold, sell?

Didn’t miss much yesterday and today’s action is similar to the one experienced throughout the week. . Of course, Chinawasn’t going to tell the Queen of Europe, they wouldn’t support Europe. Good for while, but we had that before and it wanes over time. So somehow, we remain range bound in reduced volatility. Flat to positive, some wobble, then some EU pitch, the umpteenth Greek PSI around the corner talk, a sprinkle of figures, which by and large don’t look glorious, but not shocking either. All factors allowing holding out on actual levels. Afternoon equity spike on the back of US figures. Some mechanical pressure on EUR.

Yesterday’s Spanish auction was a disappointment, but it had to be expected that at some time LTRO buying would not hold up with the falling yields. As well, selling just a little more than announced was suddenly seen as a disappointment, after having over-allotted so much more at previous auctions since the beginning of the year. Then again 2.86% on 1% LTRO 3-year is just not as compelling as 3.38% early January or 5.19% in December. That is all the more the case, that Spain had had quite a good run in market perception over the last months anyway. Being back to 2010 levels pre-discounts quite some upside potential in the Spanish economy, although eco figures are all horrendous. France’s auction was bound to be okay with French finals rather cash-rich and less present lately on AAA primary side; all the more than after the initial wave, we hadn’t any longer OF for a while. Still, good auction, which managed to squeeze down the spread to Bunds and to dragAustria along. One way or another, we managed to get most of the government supply out of the way with the upcoming week rather less emotional, if at all.

3m EUR basis swap down to 68.5, so six months low as well. 3 YRS average is 47, excluding the spike after last summer’s crash, the average is 36. ECB deposits back to LTRO level at EUR 489, after EUR 486 yesterday and EUR 472bn on Wednesday. Baltic managed to trade new 25-year lows at 651 yesterday and 647 today. Absolute low ever was 554 several times end of July / early August 1986. Might annoy readers by pointing this out over and over, but somehow it feels like an economic reality indicator as valid as copper (, which eventually as well back to August 2011 levels, but still well below the 10k all-time high traded early last year).

Primary market quiet today in pre-weekend mood. It was a very good week in primary markets, though, with some hurdles taken with finally a Spanish Cédulas (BBVA) coming back after one year, senior (Intesa, CCIF, Commerzbank ) and sub financials (Nordea) as well as new (Motability, Everything Everywhere) or periphery corporates (Atlantia, Gas Natural) and even some European HY (Haniel) names popping up.

10 YRS spread developments on the week:

Netherlands +32 (unch), 10 YRS swaps +42 (-7), Finland +43 (+1), France +105 (-12), Austria +112 (-21), Belgium +159 (-22), Spain+302 (-6) and Italy +375 (-27).

Yield-wise:

Germany 1.93% (+7 bp), Netherlands 2.25% (+7 bp), Swaps 2.35% (unch), Finland 2.36% (+9 bp), France 2.98% (-5),Austria 3.05% (-14), Belgium 3.52% (-15), Spain 4.95% (+1), Italy 5.68% (-20).

Core EZ as well as Spain (relative) underperformer of the week…Portugal finally turning around and held up better. Greece is another story, but the end is still being written and will be released very soon, well, maybe, sometime…

European equities eventually up 2.7% on the week (of which half today) and the S&P 2% (of which half today. EUR low 1.31 from mid 1.31, so about unchanged.

Credit 128 (from 141 or 9%), Financials 198 (from 210 or 6%) and Sovereigns 319 (from 323 or 1%)).

Good risk on week, but better for credit / bonds than for other asset classes. Should I stay or should I go?