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Overnight Sentiment: On Fumes

Tyler Durden's picture




 

Following a blistering two days of upside activity in Europe and a manic depressive turn in the US in the past 48 hours, the rally is now be running on fumes, and may be in danger of flopping once again, especially in Spain where the IBEX is tumbling by over 3% to a fresh 3 year low. Still, the Spanish 10 year has managed to stay under 6% and is in fact tighter on the day in the aftermath of the repeatedly irrelevant Bill auctions from yesterday, when the only thing that matters is tomorrow's 10 Year auction. Probably even more important is that the BOE now appears to have also checked to Bernanke and no more QE out of the BOE is imminent. As BofA summarizes, "The BoE voted 8-1 to leave QE on hold at their April meeting: a more hawkish outturn than market expectations of an unchanged 7-2 vote from March. Adam Posen - the most dovish member of the BoE over the last few quarters - took off his vote for £25bn QE, while David Miles judged that his vote for £25bn more QE was finely balanced (less dovish than his views in March)." Even the BOE no longer know what Schrodinger "reality" is real: "The BoE judged that developments over the month had been relatively mixed, with a lower near-term growth outlook, but a higher near-term inflation outlook. However, they thought that the official data suggesting very weak construction output and soft manufacturing output of late were “perplexing”, and they were not “minded to place much weight on them”." Naturally, this explains why Goldman's Carney may be next in line to head the BOE - after all to Goldman there is no such thing as a blunt "firehose" to deal with any "perplexing" issue. Finally, the housing market schizophrenia in the US continues to rule: MBA mortgage applications rose by 6.9% entirely on the back of one of the only positive refinancing prints in the past 3 months, which rose by 13.5% after a 3.1% drop last week. As for purchases - they slammed lower by 11.2%, the second week in a row. Hardly the basis for a solid "recovery."

Full recap from BofA:

Market action

Following US markets higher, Asian equity markets enjoyed a solid rally overnight with the MSCI Asia Pacific Index rising 1.1%. The biggest rally was in the Japanese Nikkei which rose 2.1% on speculation that Japan might take new measures to spur its domestic economy. The Shanghai Composite was a close second up 2.0% while the Hang Seng was a distant third up 1.1%. The Korean Kopsi enjoyed a solid 1.0% gain while the Indian Sensex only rose 0.2%.

After two straight days of gains in Europe, the rally appears to have petered out. Investors are tempering their expectations ahead of tomorrow's 10-year bond auction in Spain. A poor auction measured either by weak demand or higher than expected yields on the new issues should cause spreads on peripheral debt to widen and send equity markets lower. In the aggregate, European equities are down 0.3%. At home, futures are pointing to a 0.1% lower opening for the S&P 500.

In bondland, Treasuries are flat across the curve. The 10-year Treasury yield is currently 2.00%. Except for the UK, yields are falling across Europe. In the ten-year sector, German bunds are down 1bp to 1.74% while in Spain yields are 9bp lower at 5.74%. After the more hawkish than expected BoE minutes today, the UK's gilt is up 4bp to 2.13%. Absent a major shock ahead of the May BoE meeting, the market is now expecting an end of asset purchases to be confirmed.

The dollar is rallying sharply in the currency markets. The DXY index is up 0.4%. WTI crude oil is unchanged at $104.23 a barrel and gold is down $3.15 an ounce to $1,646.43.

Overseas data wrap-up

Yesterday, both the Bank of Canada (BoC) and the Chilean central bank (BCCh) left their respective monetary policy rates unchanged. The BoC left its benchmark interest rate unchanged at 1.00% for the 13th consecutive month. The statement from the bank was relatively hawkish implying rate hikes will be likely in the near term due to reduced slack in the economy and firmer underlying inflation. In Chile, the central bank left its benchmark interest rate unchanged at 5.00% for the third consecutive month. The tone of the accompanying statement was slightly more dovish than the prior month's; however, unlikely consensus our LatAm team expects no rate hikes in 2010 as inflation expectations are well anchored and global risks remain high.

Today, the central bank of Sweden, the Riksbank, left its monetary policy rate unchanged at 1.50%. The Riksbank is likely in a wait and see mode as it watches for risks to the country's growth outlook due to the recession in the euro area.

In the UK, the labor market improved marginally as the ILO 3-month unemployment rate fell 0.1pp to 8.3% from 8.4%. Consensus was looking for no change. Despite the drop in the unemployment rate the rise in average weekly earnings over that same time period was slightly less than expected up only 1.1% instead of the expected 1.2% increase. Below trend growth of just 0.6% this year will help push up the unemployment rate higher and keep earnings weak. That will cause consumer spending to underperform in the UK growing just 0.2% yoy in 2012.

Today's events

There is nothing on the economic calendar today.

 

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Wed, 04/18/2012 - 07:37 | 2354154 battle axe
battle axe's picture

Spanish 10yr at 7% by next week? Hello ECB, we need some cash? 

Wed, 04/18/2012 - 07:43 | 2354160 HD
HD's picture

The party you have called is not listed or no longer available. If you need help - hang up and dial your operator.

Wed, 04/18/2012 - 07:40 | 2354157 BeetleBailey
BeetleBailey's picture

Crank the presses. Oh that's right.....the double secret/behind the back/smoke filled room "presses".

Time to continue road building so the can can be kicked some more......

Wed, 04/18/2012 - 08:15 | 2354225 Vince Clortho
Vince Clortho's picture

We're not really printing because Bernank has not officially announced QEn.

Also, there is no inflation.

Now move along.  These are not the droids ... ect ect ect.

Wed, 04/18/2012 - 07:40 | 2354158 vast-dom
vast-dom's picture

hopium fumes spring eternal....until they don't. 

 

back to real Work.......

Wed, 04/18/2012 - 07:49 | 2354169 Peter Pan
Peter Pan's picture

As a commentator said in recent days: "All this liquidity is simply buying complacency," so let's see how long this complacency can go on for.

.

Wed, 04/18/2012 - 07:51 | 2354177 HD
HD's picture

That's a good quote mate. Remember who said it (or where)?

Wed, 04/18/2012 - 07:56 | 2354188 BandGap
BandGap's picture

In the end people are going to have to figure out that the complacency is being purchased with their money through inflation.

Now back to Ted Nugent and Colombian Prostitute Hour.

Wed, 04/18/2012 - 07:54 | 2354185 BandGap
BandGap's picture

The British use smoke and mirrows with their unemployment numbers, too, a trick I am sure will find it's way to this side of the pond. They do not count people on the government dole who are being "retrained" in schools. Lots of bakers, travel agents and manicurists in jolly old England. Oh, can't find a job in that line of work? Better go back for more training.

Wed, 04/18/2012 - 08:26 | 2354245 bnbdnb
bnbdnb's picture

Buying GBPJPY, i like it. Printing vs non-printing, no yields vs yields.

 

 

Targetting 150.00

Wed, 04/18/2012 - 08:25 | 2354254 youngman
youngman's picture

Who.....Who is going to buy the 10 yeaar Spanish bonds......they will sell...they have too....or the game is over...so someone will buy them with someone elses money....I just wonder who.........and they do not care if its 5% or 3%.....because they KNOW it will never be paid back...never....so..who is it going to be...its criminal now.....when you are spending other peoples money and knowing it will never be paid back...

Wed, 04/18/2012 - 08:57 | 2354374 sabra1
sabra1's picture

the soon to be in hell globalists are buying all debts worldwide hand over fist! then, they will demand repayment! you'll be taxed on everything and anything! one world government, bank, digital currency.

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