Surprising German Factory Orders Bounce Offset ECB Jawboning Euro Lower; Australia Cuts Rate To Record Low

Tyler Durden's picture

The euro continues to not get the memo. After days and days of attempted jawboning by Draghi and his marry FX trading men, doing all they can to push the euro down, cutting interest rates and even threatening to use the nuclear option and push the deposit rate into the red, someone continues to buy EURs (coughjapancough) or, worse, generate major short squeezes such as during today's event deficient trading session, when after France reported a miss in both its manufacturing and industrial production numbers (-1.0% and -0.9%, on expectations of -0.5% and -0.3%, from priors of 0.8% and 0.7%) did absolutely nothing for the EUR pairs, it was up to Germany to put an end to the party, and announce March factory orders which beat expectations of a -0.5% solidly, and remained unchanged at 2.2%, the same as in February. And since the current regime is one in which Germany is happy and beggaring its neighbors's exports (France) with a stronger EUR, Merkel will be delighted with the outcome while all other European exporters will once again come back to Draghi and demand more jawboning, which they will certainly get. Expect more headlines out of the ECB cautioning that the EUR is still too high.

In other news, courtesy of the cash debt bubble which has now surpassed 2007 levels (if not so much in synthetic and securitized products yet, but their time will come), Portugal had no problem selling €3 billion in 10 Year Benchmark February 2024 notes for which it had about €4 billion in orders, which priced at midswaps +400, yielding around 5.66%. All of this, of course, on the back of the global carry trade where the short end originates in various "stable" credit bubble nations such as Japan (which has to buy the EUR to get involved, thus offsetting Draghi's plans).

All of this followed yet another easing move by a major bank, this time the RBA, which in an unsurprising move cut the Australian benchmark rate to a new record low of 2.75% to "counter slowing down in the country's mining sector." from BBC:

Australia's central bank cut interest rates to a record low on Tuesday and signalled there was room to ease yet further, highlighting the relentless pressure a stubbornly high currency is putting on the resource-dependent economy.


Indeed, the local dollar gave ground only grudgingly after the Reserve Bank of Australia (RBA) surprised some by easing a quarter point to 2.75 percent, taking rates even below the nadir touched in the global financial crisis.


With the currency still not far from 28-year peaks when measured against a basket of its counterparts, analysts suspected the new normal might be lower rates for longer.


"The RBA appears to have simply grown weary of a high Aussie, while becoming more comfortable about the high pace of domestic inflation," said Scott Haslem, chief economist at UBS.


"This suggests even with our outlook for better growth, the cash rate in Australia is likely to remain low for longer than has been normally the case."


Even after Tuesday's easing, Australian rates remain among the highest in the developed world. The European Central Bank cut its main rate to 0.5 percent last week, while the Federal Reserve and Bank of Japan are effectively at zero.


As those major central banks pursue ever more radical easing policies, it puts downward pressure on their currencies while helping keep the Australian dollar painfully high.


That could be one reason RBA Governor Glenn Stevens implicitly left the door open to further easing when announcing the policy decision on Tuesday.


"The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand," " RBA Governor Glenn Stevens said. "At today's meeting the Board decided to use some of that scope."


Stevens noted inflation had been lower than expected recently and well in line with the RBA's long term target of 2 to 3 percent. The latest reading of underlying inflation put it at 2.4 percent in the year to March.

Finally, in order to "explain" the most recent overnight weakness in gold, the China gold association says China Q1 gold consumption 320.54 tons, which was up 25.6% from the same period last year. So why does gold continue to sell, and why are GLD holdings down to multi year lows? Bloomberg has the answer: Paulson gold fund lost 27% last month after the precious metal and
related securities plummeted, according to two people familiar with the
Can anyone spell ongoing forced liquidations?

The Bloomberg bulletin blast has all the pithy event soundbites:

  • Treasuries lower, tracking bunds; 10Y yield above 200-DMA; Treasury sells $32b in 3yr notes today in first of 3 refunding auctions; WI yield at 0.345%
  • The Reserve Bank of Australia cut its benchmark interest rate by 25bps to 2.75%, a record low, driving down a currency that has damaged manufacturing and boosted unemployment; says AUD record strength “is unusual given the decline in export prices and interest rates”
  • German March manufacturing orders +2.2% from Feb., prior +2.2%; est. -0.5%
  • HSBC Holdings Plc, Europe’s largest bank, said 1Q profit almost doubled, beating analyst estimates, as bad debts declined and it cut costs; French banks Societe Generale SA and Credit Agricole SA reported 1Q results that beat estimates
  • E.U. Commissioner Rehn says it’s too early to say whether Slovenia requires a bailout, E.U. may consider extending target deadline; Slovenian Prime Minister Bratusek says his government is considering tax increases as part of fiscal consolidation plan
  • Greek yields below 10% signal increasing confidence that the country is stemming the financial turmoil that triggered the euro area’s debt crisis
  • Goldman Sachs Group Inc., Citigroup Inc. and 10 other banks have restrained market competition for credit default swaps in violation of U.S. antitrust law, a union pension plan claimed in a federal court complaint
  • U.S. regulators face renewed pressure from congressional  lawmakers to ease Dodd-Frank Act derivatives requirements amid mounting criticism from Wall Street and overseas officials that the rules overreach
  • China is tightening approvals of bond sales by local government finance vehicles with higher levels of debt, three people with knowledge of the matter said
  • Paulson gold fund lost 27% last month after the precious metal and related securities plummeted, according to two people familiar with the matter
  • BofAML Corporate Master Index OAS narrows to 144bps from 147bps, tying YTD tights last seen March 14; $2.575b priced Monday. Markit IG is unchanged at 71bps YTD low. High Yield Master II OAS widens to 430bps from 433bps as $1.45b priced
  • Monday. CDX High Yield closed at 107.27, +0.04.
  • Sovereign yields higher, led by the U.K. and Australia.
  • Asian stocks rise, European shares advanced to highest level in almost five years as earnings beat estimates. U.S. stock-index futures gain; WTI crude falls for first time in four days; gold declines, copper gains

* * *

For more key macro events and outlook we go to SocGen

Financial markets are likely to come back to life today, with the return of UK investors after the bank holiday weekend.

Economic news flow is unlikely to be inspiring, however: weak numbers have already been reported for French industrial production, with manufacturing output sliding 1.0% mom (-4.9% yoy ). New orders data from German industrials are also due and a soft set of numbers would keep downside pressure on the EUR and raise question of the scale of the recent move in 10y swaps. Bleak industry data would of course reinforce the pessimistic view of the economy set out by Mario Draghi last week and repeated in Rome yesterday where he stated that the ECB stands ready to act if needed.

As illustrated by a steepening of the euro yield last week, any gyration on the swap curve leads to curve steepening: yields in the long end can back up in the event of an improvement in risk sentiment, whereas short and medium-term maturities remain weighted down by economic prospects that are still showing no signs of improvement. The reversal lower in BTP and Bono yields brings some respite after the corrective push higher but Spanish 2016, 208 and 2026 supply on Thursday will be a consideration for investors and could keep 10y spreads over bunds struggling to tighten below 285bp.

Regarding EUR/USD, its resistance to selling never ceases to impress considering the negative news flow on the euro which the parity is shaking off with remarkable ease. Overnight follow through on Draghi's comments did not quite materialize and it is the decline in AUD/JPY on the RBA rate cut decision that is leading EUR/JPY lower. Yet, it is true that the dollar's effective exchange rate recovered somewhat since the release of the US employment report last Friday, even though EUR short positions have been trimmed back over the last week. We continue to believe that downward pressure on the euro will eventually gain the upper hand especially if incoming US data confirm the more positive message from the labour market for April and indicate the Q2 slowdown is temporary. US supply is also a factor this week and a solid 3y note sale today could support USD sentiment.

* * *

The full overnight recap from DB's Jim Reid

News that Bank of America had reached a $1.7bn agreement to settle a longstanding MBS dispute with MBIA gave the US Financial sector a boost. Share prices of BofA and MBIA rose +5.2% and +45.4%, respectively. The market also saw this as a big credit positive for the bond insurer which saw MBIA Insurance Corp’s 5-year CDS rally 30 upfront points tighter on the day. BofA’s 5-year CDS finished the day 7bp tighter.

It was a softer but quiet session in Europe. The Stoxx600 (-0.48%) closed modestly lower, not supported by declines in Italian (-0.35%) and Spanish (-0.48%) bourses. The final Eurozone PMI services data for April was revised up marginally (47.0 from 46.6) but still firmly below 50. The main headline yesterday came from ECB’s Draghi as he said “We will be looking at all data that arrives from the euroarea economy in the coming weeks and if necessary, we are ready to act again.” This is perhaps not a major surprise but clearly upcoming data performance still holds the key.

Moving on to the Asia, we have a mixed session overnight but Chinese (+0.1%) and Hong Kong (+0.1%) equities are turning positive after a weaker start to the day.

The Nikkei (+2.8%) continues to march higher despite a stronger JPY overnight. Malaysia’s main equity index is up half a percent  overnight after a strong +3.4%  gain yesterday. The weekend election outcome in Malaysia, which saw the ruling Barisan Nasional coalition retain power, was seen as a positive catalyst for markets. Likewise, Malaysia’s 5-year CDS is about 14bp off its recent highs after having outperformed regional peers yesterday. Focus in Asian credit remains firmly on new issues although technicals still remain supportive.

Elsewhere the latest Fed Loan Officer Survey was another notable release yesterday. The report noted that domestic banks, on balance, have eased their lending standards and having experienced stronger demand in several loan categories over the past three months.

In terms of today the RBA’s rate decision can be expected shortly. Whilst the market is generally expecting the central bank to keep its key rate unchanged at 3.0%, DB’s Adam Boyton is expecting a 25bps cut. Elsewhere today also sees the release of French IP and trade  balance as well as factory orders from Germany. In the US, the IBD/TIPP Economic Optimism, JOLTS Jobs Opening and Consumer Credit are the main releases today. We also have a $32bn 3-year UST auction today. Data aside, President Obama will host South Korea’s President Park in the White House today. It would be Park’s inaugural visit to the White House and North Korea’s nuclear security issue will likely be high on the agenda.

Looking at the rest of the week, we can expect the usual post payrolls data lull in the US. The focus will be on a series of Fed speaks which begins tomorrow and ends with Bernanke’s keynote address on Friday. Initial jobless claims will also be a key data point this week given the current focus on labour market conditions. Today’s 3-year UST auction will be followed by a $24bn 10-year auction tomorrow and a $16bn 30-year sale on Thursday. In Europe, various industrial production releases will be the main focus this week. German, Spanish and Italian IPs are due on Wednesday, Thursday and Friday, respectively. We also have trade data from Germany on Friday. In the UK, the Bank of England’s rate decision will be a highlight and the central bank is expected to keep its interest rate and QE program unchanged. We also have UK IP data on Thursday and trade data on Friday.

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GetZeeGold's picture



Unexpected consequences......didn't see it coming really.

Bearwagon's picture

Don't worry. we sell these cars to the Czech Republic, reimport them from there, and then sell 'em with a 5000 Euro discount at the car dealerships. Problem solved (for a while). I shit you not!

Manthong's picture

hmm.. so does that mean the same car goes through successive VAT or tariff cycles?

Bearwagon's picture

Yes, this depends in fact on very different base prices for export and domestic "markets", and goes indeed through successive cycles of VAT and tariffs.

Burt Gummer's picture

Perfect, a few more pips and I can short the euro.

GetZeeGold's picture



Pile it into silver.....that crap is dirt cheap.


Send Tonto to town....and hope he makes if back alive.

Haus-Targaryen's picture

I love how Japan and the US are trying to fuck the Euro.  Japan by killing its currency against ClubMED debt, and the US with its free trade deal and killing its currency against club med.  How much longer before Mutti decides to fuck with the French and has the EU negiotaite a free trade zone with South Korea? ahahahahhahaha  


Who can produce a cheaper Carrott, Francois in butthole town France, or Maria and Jernando somewhere in the Southwest?  

Ghordius's picture

free advice: get off whatever your are taking

THE DORK OF CORK's picture

Wether it is too high or too low is not important.


It now cannot buy external goods for most residents of this market state.


Keep in mind all EU countries post 1980 (including the UK) destroyed their internal primary & basic secondary industry so as to free up a surplus for "added value" entrepot activities .........

So the PIigs now cannot buy external goods  & they cannot buy internal products as there is no internal products..............






Debugas's picture

that was the german idea all along - introduce euro to allow german industry to out-compete the periphery and destroy it.

Ghordius's picture

interesting theory, particularly since it happens it was a French and Italian idea that was sold to the Germans in exchange for Re-Unification support - against British opposition

let me guess: if the eurozone would use gold instead the EUR the Germans would reach different results? Because for all "German this and that" the truth about German labour prices is more to found in Gerhard Schroeder's Agenda 2010 than anything else

as a reminder: there was a time when Detroit was "destroying the rest of the US"

Element's picture

Reserve Bank got spooked ... shit happening that we probably haven't seen yet.

Debugas's picture

Australia joining the race to the bottom ? that is getting interesting

Element's picture

AUD is up because everyone else is printing, not due to supportive fundamentals. Currency war walking-wounded is what results, plus too much QE (and capital flight) looking for too few quality assets. So the economically 'prettier' you are, the worse it is, domestically. ... so now there'll be another surge of the ever non-existent inflation, that is denied politicially and economically (and especially by the RBA) until it can't be denied any longer, because no one can believe a word of it given the facts and the state of your wallet (i.e. GFC Part II).

THE DORK OF CORK's picture

The UK & France remain the Kings of this crumbling castle.


They remain in massive real goods trade deficit at the expense of their neighbours while the foolish German middle class seem happy to be part of a smaller entrepot serving their needs.



The deep propaganda of the FT is exposed in this piece I should think.

exposed by this commentator

outlaw | May 7 1:27am | Permalink
Thanks for this. Shame we don’t have UK figures separately; some of your charts report an EU figure and other report the Eurogroup only and oddly it says Euro (11) on the last graph and I thought there were 17 Euro-zone member states. They ought to take care, Rogoff and Reinhart got into to trouble for being selective with data sets.



And this on a morning where the British April car market posted the best April results since 2008…….

The Brits are using the Euro surplus to buy more cars.
The French are using the euro surplus to build more rail and tram lines.

But both of these countries are benefiting at least in the short term as they are posting massive real trade deficits because of the compound nature of the interest claims that they hold and also unlike Germany they do not export their physical wealth on a net basis.



This is a old trick – in fact perhaps its the oldest trick in the book.

When the Normans settled in Dingle, the harbour began to evolve as a major trading point in the South West of Ireland. The principal exports from the town were wool, hides, salt meat, fish and butter. The chief imports were wine, salt, coal and articles of clothing. An Act of Parliament was passed in 1569 which limited the number of ports through which wines could be imported. Dingle was listed among the towns in this Act and is referred to as “Dingle Husey otherwise called Dingle I Couch”

Dingle reached the highest point of its importance in the course of the sixteenth century. It was one of the great trading ports of the south. Continental wine ships and other merchant vessels plied in and out of the harbour, tying up at the Spanish pier, (presently Dingle Marina). Dingle was the main embarkation port for the great pilgrimage to the shrine of St. James at Compostella in Spain.

Strong commercial links developed between Dingle and Spain throughout the sixteenth century. Several of the Houses in Dingle were built in the Spanish fashion, with ranges of stone balconies and marble door and window frames. Inserted in the walls of houses in Green Street are stones with curious carvings which are still well preserved. One of these has the date 1586 prominent on it. The others are more ornate and depict birds. It is believed that these stones are survivals from a bygone age and the houses of the Spanish merchants who settled in Dingle at that time.

The parish church of St. James is said to have been built by the Spaniards around the time of the great medieval pilgrimage to the shrine of St. James of Compostella, and was dedicated to St. James the patron Saint of Spain. When the Reformation reached Dingle in the 16th century, the church passed into Protestant hands.

In 1529 Charles V, King of Spain and Emperor of the Holy Roman Empire, sent his personal envoy, Gonzalo Fernandes to Dingle to parley with the Earl of Desmond. An account of this meeting shows that the Earl wished to forge a political and military alliance with Spain and to have weapons and aid sent over from Spain to help the Earl rebel against England

The Tudor objective was quite clear.

Stop balanced trade.
Extract a net surplus from the colonies. (prevent the Irish from drinking continental wine and indeed burning scottish coal in the 1500s !)
Redirectt & use the surplus goods to industrialize




ekm's picture

I can guage from the reduction of commentary on ZH that almost everybody is long the market, if not every single soul.

GetZeeGold's picture



Popping Prozac like it's candy.


Don't slam the'll spook the herd.

Peter Pan's picture

Australians have woken up to find the honeymoon is over and the only real response is a kneejerk reaction of lowering interest rates as if this will make up for some really bad policy decisions of the current Labor Government.

Watch for Australia's debt to keep climbing from here on end.

Back in 2011 the world had proclaimed the Treasurer Wayne Swan as the world's best treasurer. In less than two years that award now seems misplaced given that he was simply spending the fat piggy bank left by the previous Liberal Government.

So the only paradise left on the planet is under stress because its response to the GFC was to build school halls for every school regardless of the school's numbers or future and to put insulation into house rooves which only resulted in shoddy workmanship, almost a hundred houses being burned down, and people getting killed before finally offering householders the choice to remove the insulation.

The contracts for the public school halls were won by a handfull of major companies which in many instances sub-contracted the work and made a killing.

Australia is definitely a lucky country but suffers from repeated periods of stupid, visionless and politically driven agendas.

There might be a change of government after September's general elections but the ensuing pain will hit all regardless of outcome.

The worst part is that Australia's wages have been fuelled by at least 50% due to the mining boom. Once this backs off there will be a savage correction of both wages, employment and by extension an even more savage correction of property prices which are amongst the highest in the world relative to wages.

Element's picture

The major difference between Australia and Ireland is that in 2008 our housing bubble didn't pop, as Steve Keen had been predicting, so bankster toxic trash didn't get put on the taxpayer's tab.

This time it may.

CheapBastard's picture
Melbourne property prices to fall further, RBA says[March, 2013]


Melbourne's housing market is heading for further price falls and "softer" conditions, according to the Reserve Bank of Australia.

The unusually frank assessment is likely to dampen growing speculation the two-year old downturn has come to an end as a result of improving confidence and rising auction clearance rates.

The RBA's semi-annual Financial Stability Review counts Melbourne as one of the weakest markets in the country, citing a "potential" oversupply in the inner city apartment market and new homes market on the city's fringe.


Koala Flippers beware......'Bubble, Bubble, Boil and Trouble....'

Element's picture

About three months ago all the RE snake oil salesmen were spruiking how things were going so well in Melbourne, then, that they were expecting a re-run in 2013, of the ~27% average rise in home prices they saw in 2009.

It was a complete scam, as not one of those scumbags could have possibly believed a word of what they were saying.

Bearwagon's picture

The art of creating a certain spin does not require that you believe a word of what you are saying, but that you make others believe in it.

Element's picture

Either way, they all deserve what they get.

madbraz's picture

Makes sense.  German manufacturing orders are down -0.4% year on year and the German stock market is up almost 25%.  Buy, buy, buy, blah, blah, blah, buy, buy, buy.

hungarianboy's picture

Every fund manager tells us to sell the Euro, well screw them. I'm BUYING it!!!

bozzor's picture

By all traditional logic, yes, the Australian dollar is overvalued and the Australian property market is ridiculous...but we are now in a new normal, and whilst traditional factors may eventually put downward pressure on the currency and property, other factors will lessen and maybe nullify that tendency.

Firstly, the Australian dollar is not merely strong becayse of i/r and the carry trade, but also by the fact that Australia has not broken its printing presses: money supply is quite stable, with the only exception being that the RBA has quietly spoken to all the major central banks - many of which have said they will increasingly hold $AUD as a small part of their reserves - and said that if they want to buy $AUD, to speak to the RBA diretcly, and there will be an 'arrangement' made, rather than head to the open market, which will appreciate the currency even more. 

If the EUR, JPY & USD + just about everyone else continue with currency debasement, then the $AUD will continue to hold well regardless of what happens with i/r.

Property, yes, that is looney: when you factor in Australia's low population density -barely 3 people per km2, as opposed to Singapore with over 7,000 per km2, then it does seem to defy logic. But really, Australia has become a magnet for Chinese money - old guard communist, newly rich etc - and that money is coming in because Australia is seen as safe, with a strong rule of law, transparent and fairly welcoming of Chinese investment. Even if China were to suffer a huge contraction, the money invested into Oz would for a large part remain, as it is seen as a safe investment for the children.

Sure, a mining bust would hurt like crazy and there would be severe consequences, but talk of a 50% reduction in property prices is crazy.

It's not that Australia can defy traditional laws of economics: it's just that the rest of the world has gone so far off common sense that Australia actually looks reasonably stable, you can suddenly understand why things may stay relatively OK for a while to come.