Overnight Summary, In Which We Read That The German ZEW Miss Is Blamed On "Winter Weather"
It is one thing for the market to no longer pay attention to economic fundamentals or newsflow (with the exception of newsflow generated by fake tweets of course), but when the mainstream media turns full retard and comes up with headlines such as this: "German Ifo Confidence Declines After Winter Chilled Recovery" to spin the key overnight event, the German IFO Business climate (which dropped from 106.2 to 104.4, missing expectations of 106.2 of course) one just has to laugh. In the artcile we read that "German business confidence fell for a second month in April after winter weather hindered the recovery in Europe’s largest economy... “We still expect there to have been a good rebound in the first quarter, although there is a big question mark about the weather,” said Anatoli Annenkov, senior economist at Societe Generale SA in London." We wonder how long Bloomberg looked for some junior idiot who agreed to be memorialized for posterity with the preceding moronic soundbite because this really is beyond ridiculous (and no, it's not snow in the winter that is causing yet another "swoon" in indicators like the IFO, the ZEW and all other metrics as we patiently explained yesterday so even a 5 year old caveman financial reported would get it).
And if that wasn't reason enough to breakdown in riotous laughter, one look at the reaction in the EUR, which tumbled 40 pips on the news, only to soar 100 immediately thereafter as the BIS came to the rescue and started lifting every offer to give the impression that all is well, and in the process push the USDJPY and the eMini stock future with it, should be enough.
There were no other major economic news (that could be blamed on the weather), and the next key reporting milestone is the US durables report. Just what idiotic reason will the miss here be blamed on by the MSM we wonder.
In the European fixed income space, the onslaught of Japanese cash continues, with Spanish 5 Year yields sliding under 3% on the back of even more calls for ECB rate cuts, while at the same time Germany auctioned 30 Year bonds at a record low yield of 2.16%. The scramble for yield has never been more acute.
Finally, moments ago we learned that Italy's brand new (and we use the term loosely), second term president, 87 year old Napolitano will name PD depity Enrico Letta as PM of Italy. How Berlusconi will feel supporting an opponent when the latest polls have his coalition far in first place, remains to be seen. For now the market doesn't care and only hope there is no more snow in the winter which apparently explains all that is wrong with the world.
For everything else, there's CentralBankCard.
Some more insights from SocGen:
The pace of decline in peripheral bond yields and the resulting narrowing in spreads over bunds is taking on frightening proportions, and for a change, does not strictly appear to be only sponsored out of Japan (waiting on monthly balance of payments data to confirm that is the case). On a day when the global economy flashed new signs of slowing demand, yesterday's performance across asset classes was very impressive to say the least (iTraxx tighter by nearly 4pts, Eurostoxx +2.5%). The bullish price action has not been reflected in the currency markets (with the exception of the besieged Swiss franc), with the SEK in particular taking a serious knock. With peripheral yields crumbling, gone are the safe haven attractions of AAA currencies like the SEK (or the franc).
But are the moves for real? Harking back to miserable macro fundamentals, it won't be a 2-year extension for Spain to meet its deficit limit that will bring back growth imminently, or a contraction in German GDP that will bring back inflation in Switzerland. Either there is a big reallocation trade going on in Japan (EUR/JPY upside potential) or markets are pinning their hopes on central banks like the ECB (the SNB) to deliver something extra in terms of stimulus (currency intervention). But as our economists point out, this is not seen resolving the underlying issues of credit demand and supply which have dogged the eurozone's recovery. The German IFO survey this morning could be a timely reminder that while there is positive contagion in bonds, the negative ripple effect from southern to northern Europe has not stopped spreading. With the above in mind, predicting the next 1.5% move in EUR/USD is incredibly difficult.
The full recap from DB's Jim Reid:
It was one of those ‘bad news is good news’ days for markets. The disappointing German (and Chinese) PMIs were quickly looked through by investors as expectations of ECB easing rose on the back of softer data. A broad based rally in markets carried the CAC, DAX, IBEX and FTSEMIB +3.58%, +2.41%, +3.26% and +2.93% higher on the day, respectively. Italian and Spanish 10-year bond yields fell by 11bp and 21bp to close at 3.94% and 4.28%, respectively – which also brings them to their lowest levels since November 2010. European credit spreads echoed the move elsewhere although they were a relative underperformer to equities with Crossover only13bp tighter on the day. It was a showdown between fundamentals and hopes of (more) central bank liquidity with latter seemingly gaining an upper hand yesterday.
The European session cleared the way for a positive start in the US which lasted throughout the day, only to be briefly interrupted by a fake Associated Press tweet that two explosions had hit the White House. AP later clarified that its twitter account has been hacked and the tweet was bogus. Nonetheless it caused a short-lived panic which saw the S&P 500 plunge 1% in the afternoon before recovering in the next few minutes to eventually close 1% higher on the day. US sentiment was supported by the better-than-expected new home sales print (1.5% vs 1.1% expected) even though the Markit US PMI Preliminary (52.0 vs 53.9 expected) and Richmond Fed survey (-6 vs +2 expected) for April were both below market estimates. It was also a mixed day for earnings as strong EPS beats was again met by disappointing top line performances. Of the 36 companies that reported yesterday, 26 of those topped EPS consensus but only 10 of those came ahead of sales estimates.
Apple’s quarterly earnings report was the main story after the closing bell. The company delivered better-than-expected earnings and revenue but sales outlook was light. Capital management was a key focus with Apple more than doubling its capital return program from $45bn to $100bn by 2015. For us credit people, it was interesting to see Apple announce plans to put some debt on its balance sheet for the first time since 2003. Apple received its debut credit rating of AA+ (S&P) and Aa1 (Moody’s) yesterday so maybe credit investors are not too far away from taking a bite at Apple after all! Apple stocks closed -0.54% lower in extended hours trading to close at $403.95/share.
Turning to the Asian session, equities are mostly stronger following the positive US lead overnight. The Nikkei (+1.6%) is leading the way again while the Hang Seng and KOSPI are also +1.3% and +0.9% higher as we type. WTI is up +0.3% at $89.5/bbl while Gold is up +0.7% at $1423/oz. Asian iTraxx is about 1bp tighter and the new issue pipeline remains very robust. Australia’s sovereign CDS is 1bp tighter despite S&P’s warning that the country’s AAA credit rating will come under pressure if the government does not show commitment to eliminate the budget deficit. The Shanghai Composite (+0.68%) is up for the first time this week after a 2.6% decline yesterday.
Staying in the region, the WSJ reported China sent eight maritime-patrol ships to the waters surrounding the Senkaku/Diaoyu islands. China said it was responding to the "illegal entry" of boats piloted by Japanese activists into its waters. The Chinese fleet was the largest sent to the area since the island dispute flared up in September last year. Senior government officials from each side demanded that the other withdraw ships from its territorial waters around the islands. This renewed tension came a day after visits to the Tokyo war shrine by top aides of PM Abe which reportedly had set off angry protests from Seoul and Beijing.
Back to Europe, Italy’s President Napolitano is set to announce his choice of PM to form a new government today. Reuters reported that the new coalition government could take office in a matter of days and would be backed primarily by the rivals on the centre-left and centre-right. These are the same parties that had refused to reach a deal since national elections in late February. Former PM Amato is said to be a leading candidate to receive the pole position although the mayor of Florence, Matteo Renzi and centre-left deputy leader Enrico Letta have also emerged as possible candidates. Berlusconi's PDL, the centre-left PD and the centrist Civic Choice movement have all said they would cooperate with whoever Napolitano chooses.
So while we keep a close eye on Italian politics today, ECB’s lending survey and Germany’s IFO survey are also key releases in Europe. As we go to print, Credit Suisse just reported better-than-expected earnings headline. In the US, durable goods orders will be the notable print. We also have a busy day of company earnings with more than 40 S&P 500 firms expected to report.
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