07 February 2012 – " All Along The Watchtower" (Jimi Hendrix, 1968)

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Uneven start into the day on “Grexit” worries. US close better than start, but still slightly negative. Asia uneven with Chinaselling off on official growth risks warnings and fading POBC support hopes (Remember that warning last week). IMF estimates China’s growth risks to be halved with Q4 growth a “mere” 8.9%. EUR holding up nevertheless. Japan wielding stealth intervention to limit Yen performance, so the latter might be a reaction to this, rather than risk on sign. Credit likewise. European figures not especially enticing with German Dec 2011 IP much lower than expected. At -2.9, this is a low print of the likes of end of 2008. Unlike yesterday, when markets held well in the game of chicken, markets got slowly but surely heavier throughout the morning. Another day, another game... So mild risk on in the afternoon, with Bunds trading off the news of a government draft agreement to put to the political leaders in Athens. Had equities tick up a little, but with not much follow through on credit. Finally getting some lift on the back of US equities to flirt again with Monday’s closing levels. Further nightly meetings in Athens planned. Meeting fatigue? Reply from Luxembourg: No Eurogroup meeting planned before 09 Feb.

Some sovereign supply in Greece (yes) and The Netherlands. (Uninteresting, as probably wholly domestic bank-driven) EUR 812m Greek Aug 2012 bills at 4.86% (after 4.90% last month) in decent B/C. Way more expensive than the now famous 4.300% 20 Mar 2012, which is quoted in the 1400%s. (EUR 14.4bn outstanding). Note that everyone focuses on the repayment of this issue (because it’s the nearest), but there another EUR 8bn lined up mid May, as well as EUR 7.7bn in August and EUR 2bn in December. Total Greek long bonds due this year EUR 32.7bn.

The Netherlands issued slightly over EUR 6bn of new 10 YRS at Bunds +47 (from an initial +46/50 range), having closed books passed EUR 9bn. EUR 5bn minimum were targeted. Difficult to compare to outstanding deals given the lack of regularity in Dutch issuance, privilege of a relative debt-lighter state (64.5% debt to GDP, Q3/2011, versus EZ average of 87.4%, as published by Eurostat no later than yesterday).

Monday ECB deposits down to EUR 503bn from EUR 511bn (2^nd highest ever), still only the 4^th time over the EUR 500bn mark. Baltic Dry rising for a second day to 660 from 648 (+1.9%) after its 25-year low of 647 last Friday.

Primary markets remained active with finally a Spanish senior deal for BBVA, who happened to have been the one to close the market last November, in the line of last week’s Intesa transaction, by way of a 18m FRN. Banesto on the heels of its Spanish peers for a third Cédulas since last week. Another second tier name going through. Allianz and Crédit Agricole on seniors. SSA about put, while waiting for the Netherlands and Canada to print. Very good corporate traffic with 4 European deals, of which 3 in the BBB bracket and non-Core (Spain, Poland). Telecoms on the fore. Not bad for a slightly tense environment.

Spreads to Germany initially pretty unexciting to stable, wider in the morning as the periphery had a rougher start and tighter in the close on Bunds plunge: 10 YRS swaps +42 (-1), Finland +42 (-2), Netherlands +47 (unch) [new reference], France+103 (-4), Austria +109 (-4), Belgium +156 (-5), Spain+307 (-3) and Italy +362 (-10). Note that Finland’s 10s are April 2021. Solely Germany has now 10s trading below swaps nowadays.

Still waiting for a solution – or an escape plan… The Economist had pointed out in Nov 2011 that global stats were showing “a current-account surplus that planet Earth appears to run with extraterrestrials”. It’s maybe time to channel some lose debt into space…

Taking a step back; US equities are really impressive at actual levels. The Dow is ticking on some kind of fuzzy 5-time top formation here around 12800s, which was only broken between April 2007 and May 2008, leading to the all-time high of14.164 in Oct 2007 (i.e. 10% from here), before crashing later. This is similar to S&P’s 1.350s level, which by and large was broken over a longer period, but with a lower spike than the Dow, between Oct 2006 and June 2008 (All-time high 1562, i.e. 17% from here). When comparing the EUR Stoxx at 2500 (still 45% from its 2007 peak), you get some serious sense of divergence here.

If timed correctly: Hey, Mark Z: C !