Sentiment: Deep Red As Europe Is Back With A Thud

Tyler Durden's picture

Oh where to begin. The weakness in the markets started late last night when Australia posted a surprising second consecutive deficit of $480MM on expectations of a $1.1 billion surplus (with the previous deficit revised even higher). This is obviously quite troubling because as we pointed out 3 weeks ago when recounting the biggest Chinese trade deficit since 1989 we asked readers to "observe the following sequence of very recent headlines: "Japan trade deficit hits record", "Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports", "Brazil Posts First Monthly Trade Deficit in 12 Months " then of course this: "[US] Trade deficit hits 3-year record imbalance", and finally, as of late last night, we get the following stunning headline: "China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil." So who is exporting? Nobody knows, but everyone knows why the Aussie dollar plunged on the headline. The shock sent reverberations across Asian markets, which then spilled over into Europe. Things in Europe went from bad to worse, after Germany reported its February factory orders rose a modest 0.3% on expectations of a solid 1.5% rebound from the -1.8% drop in January. But the straw on the camel's back was Spain trying to raise €3.5 billion in bonds outside of the LTRO's maturity, where the results confirmed that it will be a long, hard summer for the Iberian country, which not only raised far less, or €2.6 billion, but the internals were quite atrocious, blowing up the entire Spanish bond curve, and sending Spanish CDS to the widest in over half a year.

To wit: Spain sold €972.6 million in 4.25% 2016 bonds, at a whopping 4.319%, nearly a full percentage point higher compared to 3.376% just a month ago on March 1, and at a lower Bid to Cover: 2.46 compared to 2.59. It also sold €489.5 million in 4.85% 2020 bonds at an average yield 5.338% vs 5.156% at the previous auction on Sept. 15. And while the bid to cover 2.963 vs 1.99 at the last, by then the horses were out of the barn. The result is a surge in Spanish CDS to 457 bps, +18, the widest since November 28, as well as a slide in bond price. with the yield on the 5 year bond surging27 bps to 4.53%, and the 10 Year spiking by 23 bps to 5.68%, both the highest since very early January.

And with the ECB meeting a day earlier, and expected to do absolutely nothing (what can it do? It was already sequestered all the worthless European collateral in exchange for Discount Window borrowings), and with the Fed supposedly on hold, there is nobody to provide that deus ex machina oomph so desired by the liquidity addicted markets, resulting in deep red across the board.

Some of the instant view responses from Reuters:


"The headline looks negative, because they raised 2.5 billion. That's what the market is focusing on. However, the bid/covers were quite satisfying.

"There was a choice to show the market they were not desperate to raise the full amount. But that hasn't paid off because the market only looks at the (total amount)."

"The market is pessimistic about Spain. Domestic banks...failed to provide reasonable bids. Pressure on Spain will continue throughout the day. It won't stop now."


"The Jan-15 looked quite rich vs the Spanish curve ahead of today's tap whilst the other two lines looked fairly priced. The Spanish debt has been under pressure over the past few weeks and yields were still rising this morning...Market dealers seem to look at fundamentals now, with risks of a deep recession undermining the positive effects of the large ECB liquidity injection.

"Demand was not bad but bid/cover ratios are far below what we have seen at the start of the year when the Spanish debt benefited from the effects of the LTRO, regained confidence and a massive short-covering."


"The market is going to be disappointed that they've only sold 2.6 (billion euros) against a target of 3.5.

"The question is how much of this is a function of say 'we're not going to accept scrappy bidding - we're so far ahead of our issuance plan that we're just not going to sell at some of the cheeky bids'?

"The fact that the yields have risen quite sharply, relative to their previous auctions, as much as this was already in the secondary market, there will be some disappointment on that."


"The results are a far cry from the blowout auctions we saw between December and February, which will no doubt be interpreted as the LTRO bid having dried up. There appears no problem in issuing the paper, but judging by the average yields at these auctions, demand is now much more price sensitive and a truer gauge of investor sentiment."


"The Spanish Treasury failed to raise the maximum amount and yields, bid to cover ratios are lower than the previous auctions and all in all suggests investors remain very cautious towards Spanish bonds at the moment. This auction adds to worries about the fiscal position, keeping Spanish bonds on the defensive. Every aspect of the auction was disappointing. We saw 10-year yields test 5.55 percent, the next key support is 5.72.

"Investors might demand a higher risk premium for buying Spanish bonds clearly that's the message from today's results. The market wants to see the fiscal consolidation measures being implemented and wants to see the economic picture improving."


Elsewhere, this is what German factory orders looked like split betweeen Eurozone and non-Eurozone orders. While China may be saving Europe for now, internally things are just imploding. As Goldman says "Domestic orders declined by 1.4%mom after +1.9%, while foreign orders rose +1.7% after -4.7%. There is a strong divergence between orders from within the Euro area, where orders are declining fast, and orders from outside the Euro area, which are back on an upward trend (see chart)."

And with that, after a 3 month hiatus, Europe is baaaaaack.

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Starving Artist's picture

Could this be... possibly... volatility?!?!  Surely not in 2012

Awakened Sheeple's picture

Volitility is dead. Move along...

Vampyroteuthis infernalis's picture

Free markets are dead. Move along, nothing to see.

Thomas's picture

Who the hell would buy Spanish debt returning 4%? 

Theta_Burn's picture

A red open OR a red guys are funny

ndotken's picture

After the Greek fucking, I'm surprised there's anyone willing to bid on a European sovereign bond ... especially one of the PIIGS.  What the fuck are these people thinking???  I guess they have no one to blame but themselves when the ECB fucks them over.

sabra1's picture

i'll say it again! the soon to be in hell globalists, are buying all debts hand over fist across this planet! just wait 'till they demand repayment from the pleebs! that is the end-game!!!!!

Ghordius's picture

OT, but not much - the best rumour I heard yesterday was that Jon Corzine had been framed. as you might know, he was with MF Global in heavy bets on europe's credit staying calm, and, according to this unverified source, the gentlemen coordinating this little scheme - involving a run on the CDSs - attacked europe's credit in order to crash MF Global (LOL). What the did not expect was the firm dipping into the client's accounts...

I repeat, it's a rumour, and it reminds me of the Chicago Mobsters fighting over territories and markets...

Jesse's Cafè Americain is covering some parts that somehow match the rumour, though he's keeping it factual

GeneMarchbanks's picture

AUD is no longer supported by Chinese recycling of USTs in the same degree as the past decade or so. Coupled with high private debt levels and over reliance on mining the entire thing will topple.

duo's picture

The correlation beween $xad/$xjy and $spx is nearly one.  Plot it for the last couple of years.  It's all the computers trade on.

Bobbyrib's picture

Spanish bond yields have not risen enough, junk bonds (which is what Spain should be rated) can always go higher. Looks like Bernanke will have to re-issue a statement to calm the markets and get out the curtain again.

vmromk's picture


Ghordius's picture

yes, yes, it's ok and you are preaching towards the wrong side of the church

Try some Timmy-bashing for variety's sake - or mayby some content

lizzy36's picture


Bernanke hasn't done anything illegal.

It is very simplistic to hold Bernanke responsible, when in fact it is a whole system.

The system may have been set up by the kleptocrats, but it is the people who can break it down. But what are the people doing, bending over and at best whinning, "okay just the tip".

Let me repeat this:Berenke is NOT evil. He is working within the system as it was designed.

Ghordius's picture

I agree in part, lizzy. the FED can (and some say must) monetize only debt that the Treasury issued. And this can only happen if Congress and the Prez sign a budget that entails a deficit. And this can only happen when the electorate is not enraged enough about a deficits. or decades of increasing deficits.

Bernanke is something like the carrion eater - good hardworking ugly slimy dirty animal needed in the ecosystem...

ZIRP? This can also only happen when the banks think that short-term goals are mch more important than long-term ones...

which just reminds me - WTF are they thinking?

vmromk's picture

He is monetizing the debt, keeping interest rates at levels which do not reflect risk, deliberately trying to create inflation, and allowing banks to keep two sets of books.

What would you call that ?

Poor Grogman's picture

Trade deficits of the west will worsen as OIL continues to go up and puts pressure on the terms of trade of those countries most reliant on oil/energy imports.

Look for steady (to good) terms of trade though for exporters.


o2sd's picture

Australia is completely self sufficient in Brent Light Sweet. Bass straight produces more than AU consumes. All of that brent light is sold on the Singapore bourse and Aussies import the heavy nasty stuff, but doesn't change the fact that AU is energy self sufficient.

AU trade deficit is due to many factors, but primarily

a) A correction in commodity prices (particularly iron ore and coal), and a general contraction in commodity purchases from China and Japan, as Brazil and Africa look better in price because of the strong AUD. (Chinese steel production is collapsing, because building construction is so steel intensive and building construction has ground almost to a halt.)

b) A contraction in education, manufactured goods and food exports as the AUD strength bites.

c) On the import side, Aussies are still buying plastic shit from China like there is no tomorrow. I guess they will play Chinese plastic fiddles while the economy burns down around them.

d) Overseas property investors are pulling out of the housing bubble while they still can, and new home purchases have dropped to the lowest since the GFC.

3) The country is run by imbeciles and Communists.


Poor Grogman's picture

The country is indeed run by imbeciles and communists.

The inevitable end of a huge credit expansion in RE is approaching and will hopefully waken Aussies from their political malaise.

The country is self sufficient in everything I can think of, yet imports almost all manufactured goods.

The country has been officially globalized.


PaperBear's picture

Surely the naked silver shorts are being exhausted - $31.80/oz - and the Bundesbank is mentioning the word 'inflatinary'.

Poor Grogman's picture

How can you get exhausted typing zeros into a computer?

Hell you could even automate that if needed.

I'm sure the bernack has a natty gadget that can create trillions just by clicking an I-phone

Sandmann's picture

The obvious thing now is for The State to monitor all communications and take control of all trading platforms and to focus on implementing "Correct Pricing Modules" on all trades to facilitate market clearing. The inexorable move towards Real Existing Socialism is only possible when Gleichschaltung has brought all the organs of the societal structure into alignment with the Ruling Elite.

Watch out for Capital Controls......they are on their way

GeneMarchbanks's picture

Ah, Gleichschaltung... does it sound as beautiful as it looks? I mean, when said aloud?

Always good to see Nazi terminology making a comeback, long over-due in this non-German speaker's opinion. Which will be the first to do this might be a more interesting question.

Ghordius's picture

Gleichschaltung was the reason for Dr. King's statement that Hitler's rules were legal - I still maintain that he also wanted to make the deeper point of the fact that if you corrupt your constitution (for example by "Gleichschaltung") your laws stop being binding...

I'm often aghast at the financial's world people longstanding habit of misusing the non-financial vocabulary to talk their books...

sandmann, I'm sure you know that most financial controls are illiberal but not incompatible with democratic principles

Sandmann's picture

Ghordius I lived under capital controls most of my life and watched my father need Government permission to import laboratory equipment; and to record any foreign exchange in my passport with a £50 limit from 1949 to 1979. Germany had capital control from c. 1938 to 1957 so yes, it is part of a War Economy. Democratic Principles ? I don't know much about those outside textbooks, I long to see them in Britain - perhaps someone will implement them sometime ?

Ghordius's picture

LOL - ;-) don't worry, I had my times with capital controls, too - could tell some stories about, including some funny ones with the Guardia di Finanza and some less funny ones with the SteuerAemter. Was just in my philosophical mode..

Ghordius's picture

LOL - this "orders for German products from inside/outside the eurozone"

is the same chart our friends in NY use to make their dear points?

- that the Germans want a cheap euro to boost their exports outside the eurozone (external mercantilist approach)


-that the Germans want the euro so that they can export inside the eurozone (internal mercantilist approach)

double LOL, of course whatever a nation trying to produce something of value will be the target of all kind of insults,

Life in the FX world would be soooo much nicer if there would be some betting on the Deutsche Mark to be made - money for leverage is free and plentiful...

Burr's 2nd Shot's picture

This "deep red" you speak of, is it just a different shade of green?

cossack55's picture

Is that the same thud as heard in Clintonville, Wi.?  If so, its just a tremblor. LOL

TradingJoe's picture

Were basically nowhere, just sideways...correction my ass! VIX @ 15ish!!! LOL!

Boilermaker's picture

Why no mention of silver's ass pounding?  My call options in June look like total dog shit now.

4% down in 24 hours?

Stroke's picture

Whew...With a plunge protectection team what could go wrong?

HD's picture

"So who is exporting?"

Now Tyler, you know the answer to that. All the worlds goods are now channeled through your local GM dealership.

youngman's picture

Look to the "New" countries......Colombia for one....the new exporters

juggalo1's picture

Seriously, who is exporting?  China, USA, Australia, Japan all in deficit?  I thought Europe only exported within the Euro zone and was another net importer (or at least not a major exporter).  Surely it's not all Russia and the Middle East?  OMG is it?!?

TBT or not TBT's picture

It is obviously Africa...or Antarctica!   No, wait, could just be systematic shipping accidents, but then where are the insurance claims?

Hansel's picture

Tyler posted some number a few weeks ago.  The world ran a net deficit of around $350 billion last year, IIRC.  Money printing makes the world net debtors.

Iam_Silverman's picture

"Seriously, who is exporting?"

If we export inflation through QE, does that count towards our GDP numbers?  If so, positive or negative?  Investopedia doesn't address that.

eddiebe's picture

Dollar strength has to be asserted, so any excuse will do to pound down other assorted assets, especially commodities and doubly so the PM's.

Nussi34's picture

Orders from outside the Euro area will increase even more the smaller the Euro area gets!