Goldman's Henry Bowe summarizes the day's key events
Modest selloff in equities today, which is actually somewhat surprising. Better global backdrop: European sovereigns tighter. Domestic conditions encouraging: weaker USD + lower rates. Easy to chalk weakness up to disappointing claims data, but those early losses were actually recovered by midday. So looking at the macro dashboard what sticks out? Munis. MUB retesting the lows as plans for new muni bond ETFs are scrapped. Remember too that muni bond funds have recorded eight-straight weeks of outflows according to Lipper data. SPX closes down 2 at 1284. The DOW closes down 24 at 11732. The NASDAQ closes down 2 at 2735.
The VIX closes up a modest .15 at 16.39.
Focus remains on EURO in FX today as the short-squeeze continues. Three-big figures today in EURUSD. Approaching serious resistance however – 55d, 100d, 38% FIBO, DeMark, January high. And the supply has finally started to come in front of it. Still, the level of conviction is much lower here than when spot was sub-1.30. That’s what five big-figures in four days will do I guess. Though the USD did weaken across the board, today really was about EURO outperformance – the single unit made gains against every currency I have on my board with the exception of HUF. Makes sense given hawkish comments from Trichet and the subsequent selloff in euribor.
This week’s much talked about European supply came to an end today as Spain auctioned 3bn 5yrs and Italy sold 6bn 5yr/15yrs. The Spanish supply was less well received and both countries widened from the tights of the day while bunds and USTs rallied outright. Treasuriescontinued to rally on what felt like a short squeeze into the 30y auction causing it to tail by 2.5bps. The market traded well on the follow on as focus returned to the respite from supply for a few weeks and the sizeable buybacks ahead. 7s were the best performer on the day rallying 7.4 bps while 2s and bonds were only 1.6 and 2.4bps better respectively. In swap space we saw fast money going both ways in 5-10 yr spreads, as well as net better paying in 30yr spreads from both real and levered money.
In commodities, oil about 50c to $91.40/barrel, with a big drop following the close on news of the postponement of a refinery shutdown. In addition, the Brent / WTI spread has widened to levels unseen since early 2009 (-$7.25/barrel). In metals, gold traded in perplexing fashion given a backdrop of USD weakness (down almost 1% to 1374 despite a near 2% rally in EURUSD). Technical congestion around these levels isnotable. Ags continued their upward climb today, maintaining momentum from yesterday’s bullish USDA report. Both corn and soybeans rallied to their highest prices since 2008 (corn up 1.82% to $6.425 / bushel and soybeans up .071% to $14.16 / bushel).
After opening a touch tighter,credit sold off with the weaker than expected claims data and slide in stocks bringing a bid for protection into the market. Despite the general market weakness, there continues to be some demand for front end risk. IG widened 0.5bp to 84.75 and HY dropped 3/8 to 103 3/8.
Tomorrow brings a slate of US data – CPI, retails sales, and IP – along with inflation numbers out of India and the Eurozone