If the last three days were spared an overnight ramp in US futures, today this has not been the case as the new carry pairs of choice, the USDJPY and EURJPY, have seen constant gradual levitation overnight, pushing the correlated US OTC markets higher and setting the stage for the tenth consecutive, and perfectly artificial, Dow Jones increase. It is notable just how broken the old direct EURUSD-ES correlation is in times when correlation desks can offset selling pressure by shorting Yen and obtain local funding. That said, even the USDJPY appears to have stalled out in the low/mid 96 range - it is unclear what the catalyst pushing the Yen much lower will be, as virtually all rhetorical ammunition used by the BOJ and its affiliates, has by now been well and truly used up, and the daily talkdown sessions are merely a regurgitation of previous talking points.
In actual news, there was little to be excited about: Eurostat reported that European employment dropped to 2006 levels, Greek youth unemployment rose to another fresh all time high, Spanish January retail sales dropped -10.2% (but better than the -10.7% in December), Hungarian Industrial Production fell 1.4%, Spain sold €803 million in bonds due 2029, 2040 and 2041, pricing at 5.224% (5.787% last), 5.434% (5.893% last), and 5.432% (5.696% last), even as the Spanish bond yields have been grinding wider. This being Europe, however, real news are relegated to the markets and to political happenings, as a two-day summit of European leaders begin today which will endorse plans to grant extra time to France, Spain and Portugal to bring down their deficits. RIP austerity, bring on the same debt-fueled prosperity that crashed the Eurozone in the first place.
Summary headline bulletin from Bloomberg:
- AUD/USD and Australian 10Y yields surged after a report showed the economy added 71,500 jobs in February vs. median est. for gain of 10k
- An EU summit starting today will endorse plans for “structural” assessments of national budgets, according to a draft statement, using code for granting countries such as France, Spain and Portugal extra time to bring down deficits
- The Troika said it would “take a short break” to allow Greece to address outstanding issues
- A Dallas Fed proposal to limit government support for banks could force JPMorgan Chase & Co. and Bank of America Corp. to shrink their U.S. consumer and commercial-lending units by more than half
- Spain sold EU803m of 2029 bonds to yield 5.224%, down from 5.787% in Feb., 2040 bonds at 5.434% vs 5.893% in Dec. and 2041 bonds at 5.432%, down from 5.696% on Jan. 17; the unscheduled auction was announced earlier this week
- Treasury’s auctions conclude with $13b reopening of 3.125% 2043 bonds; yield 3.234% in WI trading. 10Y notes sold yesterday drew 2.029% at auction vs 2.046% in Feb.; dealer award second lowest on record
Markets snapshot:
- S&P 500 futures up 0.2% to 1552.60
- Stoxx 600 up 0.4% to 296.6
- US 10Yr yield 2.045%
- German 10Yr yield 1.49%
- MSCI Asia Pacific falls 0.1% to 135.1
- Gold spot little changed at $1587.24/oz
- Euro bounced off overnight lows at $1.2937
- Dollar Index up 0.1% to 82.94, fresh 7 month highs
- Spanish 10Y yield up 9bps to 4.85%
- Italian 10Y yield up 2bps to 4.69%
- U.K. 10Y yield up 2bps to 1.98%
- German 10Y yield little changed at 1.48%
- Bund future down 0.08% to 143.02
- 3m Euribor/OIS at 12 bps
- Brent futures up 0.2% to $108.77/bbl, WTI futures up 0.2% to 92.71/bbl
- LME 3m Copper up 0.3% to $7811/MT
- LME 3m Nickel up 0.8% to $7079/MT
- Wheat futures down 0.1% to 709 USd/bu
Full recap from DB's Jim Reid:
and last night saw the Dow (+0.04%) extend its winning streak to 9 days, the longest winning streak since 1996. Markets though were still fairly direction-less as the S&P 500 (+0.13%) hardly moved even though stronger retail sales prompted Q1 GDP upgrades. Our own Joe LaVorgna now expects Q1, Q2, Q3, and Q4 US GDP to hit +3.0%, +2.3%, +3.0% and +3.5%, respectively. Certainly a meaningful improvement relative to his previous forecasts of +1.5%, +2.0%, +2.5% and +3.0%, respectively. Retail sales aside there are two other developments behind Joe’s upgrade. First net exports data for January last week indicated stronger-than-expected exports which is consistent by the recent ISM survey. Secondly, inventory restocking is moving at a faster pace than he had envisioned.
Looking more closely at February’s retail sales release, the strength was particularly notable given the headwinds from the payroll tax hike, slower refunds and higher gasoline prices. The headline number came in at +1.1% versus market consensus of +0.5% whilst core sales were also higher than expected (+0.4% v +0.2%). Elsewhere business inventories also surprised to the upside (+1.0% v +0.5%) which also came with upward revisions to the previous month’s reading. Interestingly, the better data flow didn’t discourage buyers of Treasuries at the 10- year auction yesterday as we witnessed a higher bid/cover ratio versus a similar sale in February (3.19x v 2.68x). The UST 10-year yield finished the day largely unchanged at 2.021%.
Speaking of auctions, Ireland achieved a milestone yesterday with its first 10-year bond auction since its bailout in 2010. Indeed the country managed to upsize its final deal size to EUR5bn (from an initial plan of about EU3bn) which attracted an order book of over EUR12bn across 400 separate accounts. The bond was priced at a yield of 4.15% which is now slightly below where Italian (4.66%) and Spanish (4.75%) 10-year bond yields are. Spain has a scheduled auction later today across 2029, 2040, and 2041 maturities.
Back to markets the overnight session is fairly mixed. The Nikkei (+0.6%) and the Shanghai Composite (+0.1%) are higher with the latter hoping to post its first gain in 6 days. The Nikkei marched forward after the lower house endorsed PM Abe’s nominees for the BoJ’s leadership.
The lower house is dominated by the ruling party though so all eyes will now be on the upper house vote tomorrow in which the LDP lacks a majority. The Hang Seng (-0.6%) is lower overnight as housing developers fell after the first mortgage rate hike by HSBC and Standard Chartered since 2011. Credit spreads are generally firmer in Asia with the iTraxx IG index 1bp tighter as we type.
Elsewhere, the Fed has decided to cut the lead time between the release of the FOMC statement and the start of Bernanke’s press conference to 30 minutes. The new rule will start next week following the FOMC meeting on Wednesday. Previously FOMC statements were released at about 12.30pm (Washington Time) on press conference days followed by Bernanke’s press event at 2.15pm. Going forward the FOMC statement and the Summary of Economic Projections will be released at 2pm followed by Bernanke’s appearance at about 2.30pm.
In terms of today, initial jobless claims, the current account and PPI are the US releases of note. Europe will see the start of a two-day European leader summit in Brussels today and a draft statement indicated that leaders will endorse plans for “structural” assessments of national budgets focusing on “growth-friendly fiscal consolidation”. Be interesting to actually see what the latter actually means! Elsewhere, Schaeuble will speak at a Bloomberg event in Berlin and we also have the quarterly bulletin from the BOE, and the monthly report from the ECB.