13 April 2012 – "Still I’m Sad" (Rainbow, 1976)

13 April 2012 – "Still I’m Sad" (Rainbow, 1976)
http://youtu.be/Xsq7qY_pM4E

US risk had a fairly buoyant close with equities steadily driven upwards to end +1.4%. Very smooth climb with no real acceleration. It’s notable that bonds remained rather steady, as were European Core bonds into the close. Asia was less sanguine, as the Chinese Q1 GDP, which somehow had been fabled at 9% during the US session, came out at “solely” +8.1% YoY, after prior +8.9%. Retail sales and Industrial production in line with expectation. Given still healthy monetary supply, expectations the POBC will intervene have been pushed back, leaving the market just mulling the slower development.
European data light with German CPI at +2.3% YoY, unchanged from prior, as expected. Spain at 1.8% (all EU harmonized). Italian Indu Prod still sliding with Feb printing lower than expected at -6.8% (-5.1% fcst), although Jan data was revised slightly upwards. Sad chart showing a steady decline from Apr 2010 on, only interrupted with spikes once in a while.

Market players getting nervous again when chewing on Spanish bank ECB borrowing figures (EUR 316bn in Mar from 170), a reminder that the 800-pound gorilla has some potentially very hungry offspring, which will bring back the subject of Spanish real estate to light (data next week).

Weak open given the China story. Weak periphery (10 YRS Spain above 5.90%, Italy nearing 5.50% again) and stronger Bunds. The new German 10 YRS 1.75% Jul 2022, which may have struggled to find immediate fans on Wednesday at 1.77%, was already through that level at 1.74% by mid-morning. Watch out for the squeeze, as only EUR 3.9bn were allocated (with the BuBa long EUR 1.1bn, which it uses for market interventions). Spread to Jan 2022 still at 9bp, which seems steep. Will see that falling down to 5bp sooner rather than later.

No salvation from uninspiring US figures on CPI and below forecast on Michigan Confidence at 75.7 against 76.2 expected & prior.

Market mood is back to black…
Spain 10s falling back out of bed to flirt with the 6%, from which ECB SMP mullings on Wednesday just took them away…Anyhow, they’ll be auctioned on Tuesday. Who really wants to fight over them before that?
Hadn’t had North-South / AAA/non-AAA divide for a while, but there has been some notable backtracking on the potential SMP use for Spain. Yes, the instrument is still there. No, playing with bazookas, lighters, fire or other incendiary devices is not yet allowed. At this stage… Spain CDS traded 500 today.
Never really understood, why the CBs were not selling protection instead of buying bonds…

New issues supply once more restricted to a single (once more French) corporate trade with retailer PPR selling EUR 500m 7 YRS at MS +140. Very small week on new issues anyway.

Heavy close. Heavy week. Closing on the week’s lows, too. Doesn’t bode well.

10 YRS Yields: Germany 1,73% (-6); Luxembourg 2,19% (-5); Finland 2,21% (-3); Swaps 2,21% (-3); Netherlands 2,23% (-2); EFSF 2,87% (-2); Austria 2,91% (+3); France 2,94% (+6); Belgium 3,38% (+3); Italy 5,51% (+13); Spain 5,96% (+17).

10 YRS Spreads: Luxembourg 46bp (+1); Finland 48bp (+3); Swaps 49bp (+2); Netherlands 50bp (+4); EFSF 114bp (+5); Austria 118bp (+10); France 122bp (+12); Belgium 165bp (+9); Italy 379bp (+19); Spain 423bp (+24).
[Spreads calculated on new DBR 1.75% Jul 2022]

EUR swap curve 2-5 YRS 46,9bp (+0,2); 5-10 YRS 72,5bp (+0,1) 10-30 YRS 28,7bp (-0,1).
German 2 YRS BKOs close at 0.13% (from 0.14%) and 5 YRS OBLs at 0.67% (from 0.70%)

Main back to 143 (from 134, 6.7% weaker); Financials at 247 (from 236, 4.6% weaker); Sovereigns 280 (from 274).
Credit had outperformed equities yesterday and thus gave back more today…

Stoxx Futures at 2227 / -2,4% (from 2282) with the S&P at 1375 (-0,5% from 1382, at European close).Euro Stoxx has turned negative on a YTD basis. CAC just so slightly up.
VIX index tame at 18.9, but the US holding better than Europe.

EUR 1.308 from 1.317
ECB deposits pole vaulting EUR 53bn and back to EUR 705bn from.
Oil 103,2/121,4 from 104,0/120,8 (-0,8%/+0,5%) . Gold at 1665 after 1673 (-0,5%). Copper at 361 from 371 (-2,7%) . CRB closes 304,2 from 305,6 (-0,4%).
Baltic Dry at 972 from 960. Will need to see, if freight balks at 1000 level, but that would only be a low psy barrier. It had been a former low early 2011 and the average since 2009 is a 2185.
All levels European COB 17:30 CET

On the week (compared to Thu 05 Apr close):
10 YRS Yields: Germany 1,73% (+0); Luxembourg 2,19% (-5); Finland 2,21% (-5); Swaps 2,21% (-5); Netherlands 2,23% (-7); EFSF 2,87% (+1); Austria 2,91% (+1); France 2,94% (-4); Belgium 3,38% (-4); Italy 5,51% (+9); Spain 5,96% (+22).
Old DBR reference Jan 2022 at 1.64% (-9), closing at all-time low.

10 YRS Spreads: Luxembourg 46bp (-4); Finland 48bp (-4); Swaps 49bp (-1); Netherlands 50bp (-6); EFSF 114bp (+2); Austria 118bp (+1); France 122bp (-3); Belgium 165bp (-4); Italy 379bp (+10); Spain 423bp (+23).
Spreads look a little “lighter” given the roll effect of the new German benchmark, but the pain shows on Italy and Spain nevertheless.

EUR swap curve 2-5 YRS 46,9bp (-2,4); 5-10 YRS 72,5bp (+1,2) 10-30 YRS 28,7bp (+2,7). Flight into 5s ongoing.
2 YRS BKO traded new historical lows, at 0.12% (from 0.13%). Same for 5 YRS OBL down to 0.66% (from 0.70%).

Austria, France and overly expensive EFSF now “stable” market pivots. Belgium tagging along
Italy and Spain a real worry
Markets so concentrated on Spain and Italy that Portuguese bonds had a good run with just being stable with 2 YRS 14.25% 5 YRS 14.25% 10 YRS 12.25% (from 14.25% 14% 12%)
Greece 2023 20.75% (from 21.5%)  & 2042 16.75% (from 17.3%)

Main 143 (from 132, 8.3% weaker); Financials at 247 (from 234, 5.5% weaker); Sovereigns 279 (from 272)

European equities coming from a 2012 high of 2550 (Stoxx futures) on 19 Mar, had another rough week, with Stoxx Futures closing at 2227 / -4,2% from 2325 and with the S&P at 1375 / -1,8% from 1400, at European COB last week.
Stoxx has turned negative -1.1% YTD, while the S&P is still  up 9.4%
VIX up from its dead mattress life in the 14 handle. Traded on average 19 during this week. Had a 21 high on Tuesday.

EUR 1.308 from 1.306 – eventually unchanged.
Oil 103,2/121,4 from 102,9/122,9 (+0,3%/-1,2%) . Gold at 1665 after 1632 (+2,0%). Copper at 361 from 382 (-5,5%) . CRB closes 304,2 from 306,5 (-0,7%). Commodities by and large stable with China-tracking Copper on the weakest side. Gold ok on flight to quality.
WTI and Brent up 4.5% and 13.0% YTD. Gold 6.5%. Copper 5.0%. CRB about flat on the year.
While the Baltic Dry had wobbled a little the previous week, it recovered steadily this week, closing at 972 from 928 (+4.7%).

Next week:
Again a VERY, VERY, VERY thin week on hard data in Europe. Sentiment test of the German locomotive via ZEW and IFO. Spanish auction. Periphery weakness. Oh, so weak…
Germany: ZEW on Tue and IFO on Fri
France: Running up to first round of presidential elections.
Other EU: House prices in Spain
US: Retail Sales on Mon, Housing data + Indu Prod on Tue, Claims on Thu, Philly FED & Leading Indicators.
Asia: Nothing really on the plate in China, likewise for Japan. Tue Japan Indu Prod and Capacity Util.

Click link on title or below for today’s musical support:
http://youtu.be/Xsq7qY_pM4E
(Yes, I’m aware that the song is originally from The Yardbirds, but we already had them yesterday…)