16 February 2012 – “ Sad but True” (Metallica, 1993)

16 February 2012 – “ Sad but True” (Metallica, 1993)

Had for once a weak US close, given lack of closing bail-out rumours or news. FOMC minutes unexciting, although the FED is definitively looking behind the headline figures on unemployment. Asia likewise softer, although only marginally, and giving back a quarter of the previous day’s gains. Contained disappointment. Weakest was the EUR, trading down from high 1.30s to flirt with the upper 29 handle, having traded nearly up to 1.32 in previous Asian session. No major figures to chew ob, no fresh Greek news during the morning session. ECB with negative EZ 2012 GDP forecasts, down to -0.1% from +0.8%. Brent tame, having jumped 2$ yesterday on the Iran’s announcement to pre-empt the EU embargo by stopping deliveries (mainly to Europe’s Southern sovereigns) asap. Spanish and French auctions putting a temporary floor to disappointment and supporting equities in the – 1% area, after trading down to -1.5% at the open.

Credit weaker again at open, with financials once more on the soft side, after an all-out Moody’s pre-bashing announcement. Sovereigns understandably softer, too, but contagion remained rather limited during the morning, including (long) Portugal or Ireland. Short Greece and Portugal vulnerable, of course.

Better than expected US job figures (caveat: FED’s own view) were a good support initially, as were later housing and Philly Fed, leading to credit tightening back. Financials faring much better in the afternoon, after widening 5 bp in the morning, past the 250 mark, the afternoon session saw tightening through yesterday’s closing levels.

Finally, contradictory leaks out of the EU (lower ESM rates, lower debt/GDP targets, central banks holdings PSI involvement) and Germany cemented the rebound, although the German leaks read rather like a “Ja, aber Nein” (given repeated stands on escrow accounts, EUR 130bn limit and Greek political reassurances). AAA had its way lately, so not sure this will be as easy.

Whatever, latest dates to earmark now are Eurogroup next Monday and the Greek PSI starting 22 Feb until 09 Mar. With or without GGB 20 Mar 2012? In any case, no bridge financing. Monday decision ought to be very, very square to have the PSI work.

Spanish auction pretty well bid and delivering EUR 4bn, as targeted (and not overshot). Off-the run levels obviously tighter from earlier auctions this year and in December. The on-the run 3-year benchmark on the other hand at 3.33% was up nearly 50bp from earlier this month, showing the late heaviness of Spanish debt. B/C higher, on higher available yield.  Still, the huge tails (Accepted lowest price versus average) were notable with over 45cts (about 15 basis points) on the 3 YRS bonds, as last time already, showed some discerning bids among its primary dealers.

France doing fine with EUR 8.5bn 2,3 and 5-year BTAN, of which EUR 5bn of new 5 YRS, as well as EUR1.7bn ILBs. All levels tighter than last month with better B/C ratios.

Primary markets remained very cautious with a trickle of AAA sovereign names – in currencies. Note that both hard core AAA sovereigns Finland and Netherlands have expanded into non-EUR currencies to broaden their investor base, seemingly without much problem.

New reserve maintenance period starting yesterday until 13 Mar, wiping EUR 133bn off the ECB deposits to get back to EUR 391bn. Had exactly the same shift on 17 Jan, when deposits fell from record EUR 528bn to 395bn. Spare LTRO cash?

VIX close once more higher yesterday at 21, from 20.5 at European close., ticking higher to 21.3 this afternoon Unsurprising as close and intra-day swings increased from late moves under 0.5%.

Baltic Dry fell for a second day 1% to 723, from 732, halting its recovery from its 03 Feb 647 25-year low to Tuesday’s 734.  Let’s keep an eye on it (Btw, EU new cars -7% in Jan).

Spreads to Germany wider by noon, with contagion felt on the periphery, until market reversal end of afternoon 10 YRS swaps +44 (+2), Finland +45 (-1), Netherlands +50 (-2), Austria +117 (-2) France +120 (-3), Belgium +167 (), Spain+344 (-11) and Italy +382 (-6). 10s DBR 1.87%, up 1bp. Spain recovering from auction discount.

On tomorrow’s menu: Not much… Friday. Maybe further Greek news and counter-news. Prone to any pre-weekend rumours. Plus Middle-East.

ECO: Not much in Europe, except German PPI; in the US CPI and Leading Indicators.

Markets sad in tendency, but not desperate. Eventually, most levels unchanged.