Market Sentiment: Mixed

Relatively quiet overnight session in the markets, where Europe has seen several bond auctions, most notably in France and Spain, whose good results has in turn sent the German 30 Year Bund yield to the highest since December 12, all courtesy of the recently printed (and collateralized with second and third-hand Trojans) $1.3 trillion. Per BBG, Spain sold 976 million euros of 3.25 percent notes due April 2016 at an average yield of 3.37 percent. The bid-to-cover ratio was 4.13, compared with 2.21 when the notes were sold in January, the Bank of Spain said in Madrid today. It also auctioned 2015 and 2018 securities. France sold 3.26 billion euros of benchmark five-year debt at an average yield of 1.78 percent. The borrowing cost for the 1.75 percent note due in February 2017 was less than the yield of 1.93 percent at the previous sale of the securities on Feb. 16. Elsewhere, we got confirmation of the collapse in Greece, where Q4 unemployment rose to 20.7%, up from 17.7% in the prior quarter. China weighed on Asian market action again following ongoing concerns about domestic property curbs, and a slide in the Chinese Foreign Direct Investment of -0.9% on Exp of +14.6%. ECB deposit facility usage, primarily by German banks, was flattish at €686.4 billion, while in Keynesian news, Italian debt rose to a new record in January of €1.936 trillion. Watch this space, once inflection point occurs and vigilantes realize that not only has nothing been fixed in Italy, but the current account situation in Italy, and Spain, is getting progressively worse as shown yesterday, all at the expense of Germany.

Full overnight summary from BofA.

Market action

Overnight, Asian equity markets finished mixed. The Japanese Nikkei advanced 0.7%. The Japanese rally was led by Japanese exporters, which rallied after the dollar rose against the yen. A weaker yen would be supportive of the Japanese economy, because it is highly dependent on exports. The other Asian market to finish higher was the Hang Seng, up 0.2%. On the flip side, the Chinese composite fell 0.7%, as investors worry about potential new measures to limit property speculation, which has driven real estate values in China very high. The Indian Sensex fell the most, down 1.3%, while the Korean Kospi lost 0.1%.

In Europe, equities are rallying 0.1% in the aggregate. Blue Chips are enjoying a better lift, up 0.4%. Shares in London are flat, while, in Germany, shares are trading 0.3% higher, and in France, equity markets are up 0.2%. In other words, investors are searching for high-quality companies in the Euro area that have the strength to carry through the Euro area's recession.

Meanwhile, at home, futures are pointing to a modest rebound after selling off marginally yesterday. The S&P 500 is set to recover all of its losses today when it opens. Futures are pointing to a 0.2% higher opening.

Treasuries have continued to sell off in the bond markets. Currently the 10-year yield is 3bp higher from yesterday's close and is trading at 2.30%. Overnight, the yield on the 10-year Treasury almost hit 2.35%. In Europe, the German bund and the UK gilt are also selling off as well. The gilt is up 5bp, to 2.39%, and the bund is 2bp higher, at 1.98%.

The dollar is weakening against a basket of other major currencies. The DXY index is down 0.2%. Commodities are higher, with WTI crude oil up 17 cents, to $105.58 a barrel. Gold is trading 58 cents higher, at $1,645.53 an ounce.

Overseas data wrap-up

As was widely expected, the Swiss National Bank left its benchmark interest rate unchanged at 0.00% and left its cap on the Swiss Franc at 1.20 versus the Euro. Interest rates of zero and the currency ceiling are an effort to prevent deflation from taking hold in the country's economy. Deflation risks had risen as investors flocked to the currency, pushing up the value of the Swiss Franc. That made imported goods very cheap for Swiss consumers and was causing the economy to slow.

Industrial production in the Netherlands fell more than expected in January, tumbling 3.9% mom. The market was looking for a much smaller contraction of just 0.7%. Last month's figure was revised higher to show a 2.7% mom increase, compared to an originally reported 1.7% gain. From a year ago, industrial production is down 1.7%. Looking ahead, the weakness in the Dutch manufacturing sector is expected to continue. Our European team's forecast assumes that industrial production drops 4.3% yoy in 2012.
While the manufacturing sector is struggling with weak demand, Dutch consumers continue to spend on retail goods due to the relatively low unemployment rate. Retail sales grew by 0.8% yoy in January, building on the prior month's 1.3% yoy gain (originally reported as a 1.0% increase). One reason for the relative strength of the Dutch consumer is the low unemployment rate in that country. Currently, the registered unemployment rate stands at 6.0%. That is one of the lowest rates in the Euro area. The key takeaway is that the relatively strong labor market in the Netherlands is boosting consumers' income levels, which, in turn, supports consumer spending.

Comments

[Dick Darlington]

In other zEuropean news, Spanish house prices dropped a whopping 11,2% YoY on the 4th quarter last year!

In addition to Italy's debt rising to record, January budget revenue was down -0,5% YoY.

The former ECB-muppet, Bini-Smaghi, said this in an FT interview:

*FORMER ECB OFFICIAL BINI SMAGHI COMMENTS IN FT OPINION ARTICLE

*BINI SMAGHI: EU MUST RECOGNIZE PORTUGAL MAY NEED MORE AID

*BINI SMAGHI SAYS PORTUGAL MAY NEED EU100 BILLION

*BINI SMAGHI SAYS IRELAND MAY NEED ADDITIONAL EU80 BILLION

Nothing to see here, carry on chaps...

BBG on the spanish housing market:

By Angeline Benoit and Sharon Smyth
     March 15 (Bloomberg) -- Spanish home prices fell the most
on record in the fourth quarter as the euro area’s fourth-
largest economy shrank and a reduction in mortgage lending
crimped demand for property.
     The average price of houses and apartments declined 11.2
percent from a year earlier, the most since the measurement
began in 2008, the National Statistics Institute in Madrid said
today in an e-mailed statement. Prices dropped 4.2 percent from
the previous quarter and are down 21.7 percent from the market’s
peak in the third quarter of 2007.
     “The drop in the fourth quarter is just the start of
things to come,” said Fernando Encinar, co-founder of
Idealista.com, Spain’s largest property website. “Legislation
passed by the government in February to push banks to provision
for real estate will mean steeper declines in 2012 as banks
lower prices to offload property.”
     Prime Minister Mariano Rajoy is battling to turn around a
slump in the real-estate industry as his government forecasts an
economic contraction of 1.7 percent this year that will push the
European Union’s highest unemployment rate to 24.3 percent.
His government passed a decree on Feb. 3 forcing Spanish banks
to make deeper provisions for losses linked to real estate in an
effort to push down prices and boost sales.
     Lenders, which have about 175 billion euros of what the
Bank of Spain terms troubled property assets, will have to take
about 50 billion euros in provisioning costs or capital charges
under the government plan.

                        ‘Banks Hoarding’

     “We suspect house prices have fallen by more than 30
percent since they last peaked, but accept that some of the
downward price adjustment may have been delayed by banks
hoarding large portfolios of repossessed properties,” economist
Raj Badiani at IHS Global Insight Inc. in London said in a note.
     Financial institutions have foreclosed on 328,720 homes
since 2007, according to Plataforma de los Afectados por la
Hipoteca. Lenders have also acquired properties from developers
to cancel debt and may have as many as 900,000 finished,
unfinished and foreclosed homes on their books, according to
Borja Mateo, author of “The Truth About the Spanish Real Estate
Market.”
     House prices more than doubled in the decade through 2007,
before turning negative in the first quarter of 2008 and have
since fallen by about 18.6 percent, separate data from the
Ministry of Public Works shows.
     “The lack of a credible benchmark house price series makes
it difficult to predict the likely fall in house prices over the
current slump,” Badiani wrote. “But we expect them to fall by
35 to 40 percent over the whole property market slump.”
     Spanish home sales declined in January for an 11th month,
falling by 26.3 percent, and residential mortgages decreased for
a 20th month in December, dropping by 37.2 percent from a year
earlier, according to the statistics agency. The INE started
publishing changes in house prices in 2008 and its index of
prices goes back to the previous year.

[Cursive]

@Dick Darlington

Noboby cares about house prices unless they contribute to rising equity prices! For the love of God, WB7 needs to create an Internet meme for bulltards a la the Michael Myers Goldmember character. This would be a marketing goldmine (some pun intended).

[disabledvet]

Whew! Sorry fellow ZH'er's...had a wild one yesterday! Who knew being an Ombudsman was such a dangerous profession! Anywho we've had our blow-off in yields at the long end in Treasuries...no surprise, any grade schooler knew the expiration date on "plan supression" (and no, no records were broken hardy har-har-har!)--Bill Gross is now officially "Treasury Secretary to the World" and is rabid...i mean RAPIDLY building contacts throughout the entirety of the Middle East such that debt markets can remain flush for decades to come. Contrary to what this article states Germany is not "on the hook for the PIGS debt" but is in fact systematically deconstructing the EU for its material benefit...with Goldman Sachs and JP Morgan providing all the financial firepower they need to do it. Bet against them at your own financial peril. Great...shall we call them "dialogues"?...on the Syria headline here. (Hmmm. "Dialogues." Big word for history types. The Western World's first philosopher Socrates used it as his method...was this just an accident TD'ers? Do you even understand what i am saying when i say "THIS IS A BIG DEAL"? You have unleased his method onto the Civilization...very interesting indeed!) In a great New York Times headline "Defense Secretary Panneta's planned visit to Afghanistan comes as a surprise." I really want to post that one on a wall. And "David Petraeus pays surprise visit to Turkey." And that's all the REAL news you need...courtesy of Disabled Vet. Now...for your viewing pleasure fellow Commentarians:
http://www.youtube.com/watch?v=ur5fGSBsfq8&feature=player_detailpage

[youngman]

I am watching the Treasuries today...all day long...I think the selling has begun...

[youngman]

9:14 AM Jan. Treasury International Capital: Net foreign purchases of long-term U.S. securities were $94.7B, with net purchases by private foreign investors of $60.8B and net purchases by foreign official institutions at $34.0B. Taking into account both foreign and U.S. securities, the net foreign purchases of long-term securities were $101.0B. Foreigners trimmed their holdings of U.S. T-bills by $36.9B.