15 February 2012 – “ Don't Let Me Be Misunderstood” (The Animals, 1965)

15 February 2012 – “ Don't Let Me Be Misunderstood” (The Animals, 1965)

US close, as usual lately better than open, once Europe home, and this despite news ticking that today’s Eurogroup meeting would be held as conference call only, given lack of progress. EUR down to 1.31. The China to the rescuestory got much better traction overnight, repeated a second time by China’s FinMnin to EU’s Van Rompuy, then the initial Wen story yesterday. Good for a 2% surge in Asian equities and uptick to high .31s. Can’t see the news in those comments. And the underlying fine print just sounds like Troika demands to Greece: Bring your house in order and come back. In the meantime, of course China needs to keep part of its holdings in EUR. Duh! Positive European open on equities, albeit tamer, mixed to unchanged on credit. Slightly softer on sovereigns.[China didn’t say they would buy the periphery.] [Checking yesterday’s KfW EUR 5 YRS placement figures, below, there’s plenty of way for Asian central banks to buy EUR assets while NOT buying into weaker sovereigns.]

Mixed European Q4 GDP numbers: France (+0.2%) above, Germany (+1.5%) and Italy (-0.7%) below consensus.Italy officially in recession. EZ Q4 GDP reported as -0.3% QoQ, first negative since Q2/2009. Likewise, at 0.7% YoY, lowest print since Q4/2009. US Jan IP flat (fcst +0.7%, but Dec revised upwards), so about flattish.

Equities inching slightly higher with +1% gains into lunchtime with the EU biding time with a new deadline, possibly next Monday, but “two-way” responsibility talk. Up- and downticks in reaction to pitches and comments from bailers’ or Greek side, but all in rather low vol manner. In the past week, 13 Feb had been repeatedly stressed as very final date to get the PSI actually going before the 20 Mar bond redemption. Haven’t heard back of it since. Softer tone in the afternoon on reported EU discussions to delay the second bail-out package until after the April elections. This leaves open the question of the PSI (unthinkable to execute today, if there’s no certainty about the next package) and the ominous 20 March bond payment.

General AAA political pitch: EUR and EZ are stable and sustainable. Less and lesser mention of the integrity of its components. In a nutshell: Contagion containment in case of Grexit. Maybe testing waters… Market reaction so far muted on equities, but credit heavy and financials getting jittery.

Sole sovereign supply were EUR 2.5bn in Portuguese 3m, 6m and, for the first time in a year, 12m bills. Rates of respectively 3.845%, 4.332% and 4.943%. It’s duly noted that this is lower than in the past, but what isn’t nowadays? Compares to yesterday’s Greek 3m at 4.61%. Bills have obviously a life on their own in repo operations, money markets and ALM operations with domestic banks. Not much to read in there.

Primary markets were very subdued: Mix of blackout period for lots of banks, funding pre-loading having already taken place for opportunistic borrowers and lack of traction elsewhere. By and large, corporate household names still winners every time they print.

ECB deposits clocking in EUR 524bn (+14bn) to close the reserve maintenance period, the second highest level recorded. Last month close was EUR 528bn and all-time high.

Still having a next LTRO size competition open.

VIX turned non-volatile again with a 19.5 close yesterday, but has risen back to 20.5 since.

Baltic Dry fell 2 ticks to 732. Let’s keep half an eye on it.

Spreads to Germany wider, with some contagion effects felt on the periphery: 10 YRS swaps +42 (+2), Finland +46 (+1), Netherlands +52 (+3), Austria +119 (+9) France +123 (+10), Belgium +167 (+11), Spain+355 (+20) and Italy+386 (+22). 10s DBR 1.86%, down 5bp.

Portugal bonds holding it out surprisingly well lately.

On tomorrow’s menu: Spain LTRO and non-LTRO auction in 3s and 8s. Spain has probably abused markets a little lately, by oversupplying into the rally, thus the late relative underperformance to Italy. On the other hand, by forcing the drive, Spain has so far raised about 20% of its intended 2012 supply of EUR 85bn. Just to be on the safe side. French BTAN auctions.

ECO: Spanish GDP. US PPI, jobless & housing.

Let’s hope further misunderstandings will remain contained.