10 February 2012 – “Get Back in Line” (Motörhead, 2010)

10 February 2012 – “Get Back in Line” (Motörhead, 2010)

Okaayyy… As already sensed yesterday late afternoon, the Greek party was not welcomed with open arms and pretty much sent back packing, in order to – hopefully – return, asap, with concrete and trustworthy answers. While obvious for a while, the question doesn’t really seem to be how to tweak and cut corners here and there in order to achieve some Troika numbered targets for a couple of hundred millions, but rather how to fill the gap of several tens of billions resulting from the late or insufficient implementation of the first plan against a backdrop of failing economy, in order to avoid just another bail-out in a couple of months. Despite general assertion that the idea is not to kick Greece out of the EZ, it seems that the Troika by and large, while hoping for the best, feels that risk is contained enough to play a really hard game of chicken. Come what may be. Eventually, the ball is now back into the Greek camp and whatever might have been consensus yesterday seems to unravel fast.

Chinese Jan commerce figures falling for the first times in 2 years (with exports down 15%. Seasonality of an early New Year aside: Baltic Dry, can you hear me? Harks back to IMF warning that growth could be half the targeted 8.9%, if things worsen globally. Still, about stable markets, as this weakness in turn entertains POBC hopes.

Weak-ish Asia, weakish European open with markets getting gradually worse over time. Volatility as such still rather limited, more a linear and constant RISK OFF from late optimistic levels. Quite linear, no real rebounds. Not sanguine, though. US open slightly supportive, before lower than expected Michigan just added back a little to the drag. No further particular trigger to note (outside Greek meetings that keep getting postponed and aforementioned Greek leaders either resigning or otherwise trying to distance themselves from whoever might not be around in case of early elections).

Talking of volatility (or lack thereof), VIX index waking up from its lowest since July 2011 (17.5, spiking to 48 in August and 45 in October and gradually melting to a low of 17.10 – last Friday). Of course, it’s option vol, but often seen as general risk appetite indicator.

ECB deposits really starting to settle with no wild things anymore, plus EUR 1bn to EUR 496bn. Need to check whether the Greek situation on Friday will have an impact. Markets certainly mulling Draghi’s LTRO sales pitch of yesterday. Balance-sheet reduction versus free money…

Hey! Baltic Dry rising again 2.9% to 715. Straight diagonal on chart from the 647 low last Friday.

Primary market on stand-by with exception of EUR 2bn 3.5 YRS covereds from French CFF. LTRO-maturity, initially priced a tad too generous. With EUR 7bn in orders, one of the flyers of this year’s covered bond issues. Outside that pretty much nothing.

Spreads to Germany sharply up from yesterday’s lowest since summer 2011: 10 YRS swaps +43 (+3), Finland +42 (), Netherlands +47 (+1), France +109 (+13), Austria +109 (+11), Belgium +164 (+14), Spain+335 (+16) and Italy+367 (+1+). No real contagion widening at this stage.

Note France and Austria tenure in the double-digit to Bunds was short.

This week was pretty much for nothing, except for testing 6 months highs in the void, as by and large most assets are back to the levels they traded last Friday morning…

•        10 YRS spread developments on the week: 10 YRS swaps +43 (+1), Finland +42 (-1), Netherlands +47 (unch), France +109 (+4), Austria +109 (-3), Belgium +164 (+5), Spain+335 (+33) and Italy +367 (-8).
•        Yield-wise: Germany 1.93% (), Swaps 2.35% (), Finland 2.35% (-1 bp), Netherlands 2.40% (-2bp), France 3.02% (+4 bp), Austria 3.02% (-3 bp), Belgium 3.57% (+5), Spain 5.28% (+33), Italy 5.59% (-9 bp).
•        Uneven close. Core about unchanged. Periphery saw weak Spain (on oversupply) and performing Italy (as flying under the radar and making no noise).
•        European equities -1.4% (from 2514) and the S&P -0.2% (from 1343). EUR 1.318 from 1.312, so about unchanged.
•        Credit 135 (from 128 or -5%), Financials 219 (from 198 or -10%) and Sovereigns 330 (from 319 or -3%)). Credit eventually losing 10 days of rally here.

A Greek solution was overpriced. We need to see now how things develop in Athens over the weekend.. Get Back in Line…

Glad the weekend starts tonight, as the next couple of days will be key for Greek politicians and people to decide whether to default and exit the EZ (for an unclear future) or whether to stick to it (for an unclear and certainly austere and dire future). If markets were open, we’d just ship back and forth with rumours. So lets’ wait and see.