05 April 2012 – "Swiss Lady" (Pepe Lienhard Band, 1977)

05 April 2012 – "Swiss Lady" (Pepe Lienhard Band, 1977)
http://www.youtube.com/watch?v=Vrv7Hd_g8yM

Crisis SNAFU and everyone’s ducking before the extended weekend. US weren’t able to free itself from the European pressure after the latter’s close with the S&P closing under the (largely symbolic) 1400 level. Dow only 100 ticks from its 50d MAVG, a break thereof would be bad. Asia relatively brave in the adversity with China, reopening from an extended holiday break, balancing out late data streams. HSBC Services PMI at 53.3 from 53.9, unlike the official reading 2 days ago that showed an increase. In any case, all data still over the 50 expansion mark.
Had a tentative uptick in risk, which simply didn’t last. From +0.5%, down 1% to -0.5%.

Rather robust French OAT auction, at depleted levels at over 120 to Bunds. Was good for EUR 8.4bn, hence the top end of the intended volume. EUR 4.3bn 10s at 2.98% (versus 2.91% last month), as well as EUR 1.3bn Oct 2017, EUR 1.6bn Apr 2026 3.46% (versus 3.3% in Mar) and EUR 1.2bn Apr 2041. Correct bid to covers.
One will note the slight rise in the financing cost, which some augurs will certainly suggest as just being the beginning of the pain France might be submitted to around or after the presidential elections (first round 22 Apr, second round 06 May). France then holding about in line, while Spain and Italy, after tentative rebounds at the open, just traded off some more. Pressure on Italy, as it breached 5.50% in 10s, while Spain was taken past the 5.75% mark (I incidentally warned off that last Thursday 29 Mar).

Things then just got heavier.
EUR/CHF, yes, it was bound to react to the increased tensions at some time, traded right on 1.2000, having been kept in the narrowest of all ranges since the beginning of the year. Someone disrespectfully even flashed a 1.19951, a first below 1.20 quote since early Sep 2011.
There was that thing about the SNB and its “With immediate effect, it [the SNB] will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.” Push comes to shove, and the crisis deepens, someone is bound to test what exactly “unlimited” means. In the meantime, the SNB reasserted that cap late in the morning. As other European safe-haven, the NOK is bound to be bought up, too (Had numerous NOK Aaa SSA issues lately).
To round up the heavy side of things, German Feb IP YoY was published at -1%, instead of the positive +0.5% forecast with Jan data revised lower. First negative print since Dec 2009.

By noon, we had reached the following torsion in 10 YRS sovereigns with Austria, France Belgium about unchanged, Germany trading down to 1.74% (-4 bp), Italy out to 5.50% (+13 bp) and Spain to 5.82% (+13 bp). Italian and Spanish spread at symbolic +375, respectively past +400.
400 had been the maximum spread reached before in Aug 2011 (with the exception of the November crisis, which had seen a spike to +470, before the announcement of the first 3 YRS LTRO crushed that spread back to low 300s, 330s being the average and mean since then.
Bund futures traded a new all-time high at 139.38 (up 96 ticks), closing just a little off that, despite rebounding equities. Serious damage done in the periphery, even if off highs at close.
US jobless claims a tick higher than forecasted and previous data revised upwards. In absence of follow-through selling and ahead of the long weekend in most trading hubs, things calmed down somehow with equities trying to close in on yesterday’s levels.
Credit indices nevertheless really weak on Main and Financials.

No European new issues.
Greece extending its offer for foreign law bond PSI to 20 April (second extension at this stage). Not sure people are pushing to get these done.

ECB deposits down EUR 13bn to EUR 773bn.
VIX 16.5 at COB.
Oil 102.9 / 122.9 (+1.6% / flat from 101.3 / 122.8 WTI / Brent). Gold correcting back up to 1632 from 1616 (+1%). CRB tad higher 306.5 from 306.1 Copper just so stable at 382 from 381. Given the EUR correction, Brent in EUR is at 94.10, back to within EUR 2 of its mid-Mar all-time high. Any more EUR “weakness” (Is 1.30 really weak???) or oil strength will be punishing for European consumers.
Baltic Dry wobbly at 928 (+2 points), having shed 8 points on Tuesday and Wednesday and having fixed unchanged on the top since 22 Feb at 934 twice in a row. Keeping a tab on my (physical) trade coalmine canary.

10 YRS Yields: Germany 1,73% (-5); Swaps 2,26% (-3); Luxembourg 2,24% (-4); Finland 2,26% (-3); Netherlands 2,3% (-3); Austria 2,9% (unch); EFSF 2,86% (-4); France 2,98% (-2); Belgium 3,42% (+3); Italy 5,42% (+7); Spain 5,74% (+5).

10 YRS Spreads: Swaps 50bp (+2); Luxembourg 50bp (+1); Finland 52bp (+2); Netherlands 56bp (+2); Austria 117bp (+5); EFSF 112bp (+2); France 125bp (+4); Belgium 169bp (+8); Italy 369bp (+13); Spain 400bp (+10).

With regards to the ECB supporting sovereign debt, another week of zero buying. Ever since just avoiding taking a haircut on Greece and having to justify for not doing so, the ECB seems to have become very reluctant to be cornered in such a situation again. So, best is avoiding buying the stuff directly altogether – it’s repo ware anyway…. Why load up with even more?

EUR swap curve 2-5 YRS 47,7bp (-1,9); 5-10 YRS 73,2bp (+1,8) 10-30 YRS 28,9bp (+2,7).

Main 132 (from 130) ; Financials at 234 (from 228); Sovereigns 272 (from 271).
Financials all beaten up this week (222 this Mon, 220 last Friday, 200 last Wed)
All levels European COB 17:30 CET.

Need to check mood next week, after players have been loading up on (Swiss) chocolate. Is known to be an anti-depressant. Might help to mellow tensions.

France open tomorrow, but a bit on its own. French budget pitches by both Holland and Sarkozy about in now. Might be second-guessed going forward next week, by the press, the markets or both.

Tomorrow:
Most markets closed. US nonfarm payrolls expected at 205k after 227k. Rate of 8.3% fcst (unchanged).

Click link on title or below for today’s musical support:
http://www.youtube.com/watch?v=Vrv7Hd_g8yM