06 April 2012 – "Adagio for Strings" (Samuel Barber, 1936)

06 April 2012 – "Adagio for Strings" (Samuel Barber, 1936)
http://www.youtube.com/watch?v=1dPDO3Tfab0

Hmmm…Quite quiet here today. No wonder, most markets are shut. Duh! Asia mostly lower to slightly flat with the US closing off lows, but still slightly negative. French trade deficit wider than expected at EUR 6.4bn. Will somehow need to be addressed by someone at some time.
No real figures until the US jobless claims, which are really under forecast at +120k (versus 205k forecast)… Unemployment rate falling to 8.2%, though. US markets about closed, but Treasury futures up 1 point on the news. DJ futures down 1%. Rest of digestion next week…

Very suiting for some inspirational and quiet musical support. Nice piece, fitting for this week’s drama in review: Risk aversion is back in full force with Spain again the elephant in room.
Firewall or not, as the 800-pound gorilla in the room, it is heavy enough to bring things down and drag Italy along, hence the relative similar underperformance of both this week.

-          10 YRS Yields: Germany 1,73% (-6); Luxembourg 2,24% (-3); Swaps 2,26% (-2); Finland 2,26% (-5); Netherlands 2,30% (-3); EFSF 2,86% (-8); Austria 2,90% (+9); France 2,98% (+10); Belgium 3,42% (+4); Italy 5,42% (+32); Spain 5,74% (+41).

-          10 YRS Spreads: Swaps 50bp (+4); Luxembourg 50bp (+3); Finland 52bp (+1); Netherlands 56bp (+3); Austria 117bp (+15); EFSF 112bp (-2); France 125bp (+16); Belgium 169bp (+10); Italy 369bp (+38); Spain 400bp (+47).

Very worrisome rise in Spanish and Italian yields and spreads. Roughly parallel shift of the whole curve for both +30, respectively +40 bp. So simply general dislike, but no panic yet (that is signalled when the curves start to invert…)
Traded out to test 5.5% on BTPs and past 5.80% for BONOs. Spain, as well announcing that it based its budget outlook on actual (Ok, now not that much anymore) yield levels (post-LTRO irrational exuberance lows) and its intention to lengthen its debt duration. Well, on this week’s closing levels, ay ay ay…
Italy’s turn to test waters next week.
Portuguese yields about 1% wider with 2 YRS 14.25% 15 YRS 14% 10 YRS 12% (from 13.2% 13% 11.2%)
Greece 2023 21.5% (from 20.7%)  & 2042 17.25% (from 16.8%)

Germany and the Core EZ+ gang (Holland has stabilized) now trading back near historic lows (1.67% in Sep 2011). As indicated by Angela last week, Bund yields CAN certainly rise from here… Given the relative constancy over the last months, moving averages have all melted to near actual levels (50d 1.88%; 100d 1.92%; 200d 2.05%), which makes it technically possible to rapidly break out the other way around.
But that would only be triggered by seriously good news in terms of crisis resolution and / or growth hopes and / or inflation worries. I don’t see that in the near future…

Austria and France about in sync as Core EZ minus brethren. France, as pointed out several times this week, probably in for a rougher ride in the coming weeks, be it justified or not.
Belgium faring rather well with quite some chunks of funding done for the year and thus less present. As the supply is getting digested and in absence of negative news, the Kingdom has managed to distance itself from the South and is tightening in on France.
The most surprising performance comes from the EFSF bonds, but then again with EUR 3bn outstanding, its 10s are more akin to a larger eurobond than to a sovereign issue. Firmer placement, lesser liquidity might; it trades more on a buy-and-hold manner. Now trading through Austria and France might be a bit optimistic, given the a.m. zoological risk. The same could be said for Luxembourg’s EUR 1bn 10 YRS, but we’re not talking about the same contingent risk of having potentially to raise billions, if push comes to shove.

EUR swap curve 2-5 YRS 47,7bp (-1,6); 5-10 YRS 73,2bp (+1,9) 10-30 YRS 28,9bp (+2,9).
2 YRS BKO managed to trade back to historical lows, traded mid Jan, at 0.13% to close the week (from 0.21%), 5 YRS OBL down 10 bp to 0.70%.
Flight to quality behaviour into the median part of the curve. Difficult to go elsewhere, the short end is floored; the long end suffers on-going bouts of printing press aversions…

Main 132 (from 125, 5.6% weaker); Financials at 234 (from 220, 6.4% weaker); Sovereigns 272 (from 269).
Financials all beaten up this week (222 this Mon, 220 last Friday, 200 last Wed)

European equities coming from a new high a fortnight ago, had another rough week, with Stoxx Futures closing 2325 / -3.5% (from 2410 last Friday, 2450 the prior week), while US equities remained about put with the S&P just 0.5% lower at 1400 (from 1407). Stoxx up 3.3% YTD (from 6.8% last week). S&P still up 11.2%.
Yes, Doc, I feel a pulse: VIX closing at 16.7 from 15.3 is showing some limited bouts of life.

EUR 1.306 from 1.333, victim in 2 stages of the supposedly FED turn-about on QE3 as well as the periphery jitters, coupled with a dovish ECB inflation outlook.

Commodities by and large about stable in an instable world. A bit softer, as everything else, but nothing major. Gold was the one asset that had the roughest ride, as the FED seeme to pass QE3 (for the moment).
Oil 102.9 / 122.9 from 103.4 / 123.2 (-0.5%/-0.2%). Gold at 1632 from 1663 (-1.9%). Copper 382 from 382 (unch). CRB 306.5 from 309.4 (-0.9%)
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 from 934 last Friday. It shed 8 points on Tuesday and Wednesday, having fixed unchanged on the top since 22 Feb at 934 twice in a row. Keeping a tab on my (physical) trade coalmine canary.
All levels European COB 17:30 CET Thu

Next week
Not much on the hard data front next week: European Industrial Production figures en masse on Tue & Wed. Final CPI numbers. US PPI and CPI. Beige book, maybe.

Austria and Holland should do ok with smaller-sized auctions. Germany can have a shot at trying to wring out a 10 YRS auction on historic lows on Wednesday.
Italy will try its luck on auctions on Tuesday and Thursday.

Holiday season. Thin markets. Not much hard date… Expect a market driven by sentiment and technical trading. Probably not the best environment for re-boosting the mood. My guess: Risk off, seriously off.
Given the US figures that might show that long-term decoupling might have been an illusion, probably even more risk off. Need to see on Tuesday.

Tuesday:
FR Industrial Prod Feb fcst -1.4% after -1.5% YoY, Manufacturing -1.7% after -1.2%.
SP Housing transaction and Biz confidence.
US mortgage applications, Beige book

Click link on title or below for today’s musical support:
http://www.youtube.com/watch?v=1dPDO3Tfab0