04 April 2012 – "This Is Not A Love Song" (Public Image Ltd, 1983)

04 April 2012 – "This Is Not A Love Song" (Public Image Ltd, 1983)
http://www.youtube.com/watch?v=JkWp8WC5EKg

Ouch! What a disappointment for market players. Not unlike Greespan muttering “I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said.”, last week’s tentative QE3 hint by Bernanke was seemingly just a thought crossing his mind, as the FOMC minutes certainly are not considering this (yet). Had a (mildly) softer close in the US, but more distress in Asia, which as well did some catch-up of the 1.5% correction in EU.
So weak European open in the wake. Commodities uneven with Gold getting hit most, as the US printing press is getting a break.

Already said last week that this Spanish auction and its timing was not a good idea. And then it wasn’t…
EUR 2.6bn sold on a (already reduced) EUR 3.5bn maximum is NOT what the market had expected. Small amount, higher yields, lower bid to cover, and tails remaining rather high to reach these. No good. EUR 1.13bn 2015 at average 2.89% (prior 2.44%), but with a 7bp tail to catch the lowest accepted bids , EUR 0.97bn 2016 at 4.32% (prior 3.38%) and EUR 0.49bn 2020 at 5.34% (prior comparison unsubstantial, as last auctioned in 2011). B/D ranging between 2.4 and 3. And there goes yesterday’s pitch buy Spain about lengthening its debt…

Add European retail figures coming out lower than forecasted with prior data revised to the downside (-2.1% versus -1.1% fcst after 0%, revised to -1.1%). PMI figures in Europe all a bit higher than fcst, but service is not the biggest worry these days. German Feb factory orders down 6.1% YoY, lower than the -5.5% fcst, with prior data as well revised to the downside to -6% (from -4.9%).
Bleak…
Germany issued EUR 4bn of 5 YRS at 0.80% (after 0.79% in March), of which EUR 633m were retained by the Bundesbank for market intervention purposes. Stable B/C. Non-event, confirming that as soon as there’s a bit of smoke rising, market players rush back to safe haven.
Portuguese bill auction uninspiring as most bill auctions are. Ok, there EUR 1bn 18m bills at 4.54%, which is the longest Portugal has issued since being bailed-out. Sold as well EUR 500m 6m bills at 2.9% (versus prior 4.33% in Feb).
At the same time, life of the Portuguese curve didn’t change and 2 YRS were still trading just shy of 10%. Must be some seriously committed buyers to skip that 2 YRS at twice the yield….
Bunds and the rest of the EZ bonds surprisingly static with Spain dragging Italy lower in strong correlation. Spanish 10s at 5.55% (+13 bp) by mid morning, rising up to  5.67% (out by 25 bp!) on ECB non-action on rates to settle 5.63 after lunch and ahead of the ECB press conf.
Equities down 1.5% before ECB press conf. Bunds up 35 cts. Commodities drifting lower with Gold and Silver hammered.
No revelation at Super Mario’s press conference. On hold. Risk to growth from commodities repeated. Hawks. Of course, nobody out there is hooked on cheap money. Doves. No specific exit, but exit from unconventional measures. A little for everyone…EUR, which had tanked after the FED minutes from 1.3350 to nearly 1.3100 got a bit of support there.
Ah, “peanuts amounts” on GG bank bonds from bail-out sovereigns, now refused by Austria, next to the BuBa. Seems to be less than EUR 500m, but when bankers talk about “peanuts”, and we’re not talking about the comic strip, you can be sure that it always comes back as boomerang at some time.
US ISM below consensus not helping to lift the mood, but not adding either.

No European new issues.

ECB deposits up EUR 3bn to EUR 786bn.
VIX spiking to 17.6 from 15.5 on accrued tensions.
Oil 101.3 / 122.8 (again -3.2% / -1.9% from 104.6 / 125.2 WTI / Brent). Gold touch weaker 1616 from 1672 (-3.3%). CRB down 5 to 306.1 from 311.5 (-1.7%). Copper correcting last couple of days’ resilience and back to 381 from 392.
After a first unchanged Baltic Dry at 934 yesterday for a continuous rise since 22 Feb, the index shed 3 points yesterday and another 5 today, ending at 926. End of a nice rally, though. Need to check further developments, as this index is good (physical) world trade coalmine canary.

10 YRS Yields: Germany 1,8% (0); Swaps 2,3% (+0); Luxembourg 2,28% (-1); Finland 2,29% (-1); Netherlands 2,33% (+1); Austria 2,85% (+2); EFSF 2,89% (-1); France 2,95% (+4); Belgium 3,37% (+2); Italy 5,37% (+25); Spain 5,69% (+26).

10 YRS Spreads: Swaps 47bp (+0); Luxembourg 48bp (-1); Finland 49bp (0); Netherlands 53bp (+1); Austria 105bp (+2); EFSF 109bp (-1); France 115bp (+4); Belgium 157bp (+2); Italy 357bp (+25); Spain 389bp (+27).

Very surprising to see Italy and Spain in some sort of stand-alone weakness. Will be corrected at some stage. EFSF getting more and more expensive, now trading through France.
EUR swap curve 2-5 YRS 49,1bp (-0,5); 5-10 YRS 73,4bp (+2,0) 10-30 YRS 28,7bp (+2,5).

Main 130 (from 124) ; Financials at 228 (from 217); Sovereigns 271 (from 265)
All levels European COB 17:30 CET.

Not much love for risky assets ahead of an extended weekend…

Tomorrow:
German IP fcst +0.5% after +1.8% YoY. US claims fcst +355k after +358k

Click link on title or below for today’s musical support:
http://www.youtube.com/watch?v=JkWp8WC5EKg