Iran

As Europe approaches the halfway point of the week, equities are suffering losses on the day as North America comes to market, with underperformance observed in the CAC and peripheral bourses. Markets have been weighed down upon from the open with commentary from the Portuguese PM garnering attention in the press, saying that there are ‘no guarantees’ that Portugal will return to the financial markets as planned. A Bank of Spain release has shown the bad loan ratio for the country’s banks has increased to 8.16%, further weighing on sentiment. There was also market talk of stop-loss buying of German Bunds at the cash open, the security had sold off since then but safe haven flows have kept the Bund in positive territory.

European markets are seen trading higher as North America comes to market, with some momentum seen following the release of the forecast-beating German ZEW Survey. An economist from the institution commented that downside risks have decreased significantly over the past month, prompting some risk-appetite in Europe during the morning. Participants were also looking towards the Spanish T-Bill auction with particular focus, but it did not confirm the nation’s worst fears as the auction passed with strong bid/covers, selling to the top of the indicative range. Yields, however, did increase over both lines. As such, the Spanish 10-yr yield has fallen below the key 6% mark and remained below that level for most of the session. Peripheral 10-yr spreads against the German Bund are seen tighter throughout the day, amid some market talk early in the session of domestic accounts buying the paper, however this remains unconfirmed.

All you need to read and more.

Based on supply, demand and even after taking into account the geopolitical factor, we believe oil could experience a correction later this year and in the next three years or so.

No, not Italy, and certainly not Spain. Egypt.

All you need to read and some more.

Eurozone periphery concerns continue to loom as Italian and Spanish spreads against the German 10yr remain elevated, but have come off their widest levels in recent trade amid some unconfirmed market talk of real money accounts buying Spanish paper.  Despite the concerns in Europe, the major European bourses are trading higher with individual stocks news from over the weekend propping up indices with reports of intra-European M&A and a string of good news for mining stocks pushing up markets today. Some stock stories of note include the agreement of an offer between France’s GDF Suez and UK’s International Power for GBP 4.18 per share, and a speculated merger of BHP Billiton’s and Rio Tinto’s diamond units by private equity firm KKR. The financials sector, however, is showing the strain, as the 3m EUR basis swap moves sharply lower to -53.87 from approximately -50 on Friday, with particular underperformance noted in the French banking sector.  The session so far has been very data-light, with Eurozone trade balance coming in slightly lower than expectations but markets remained unreactive to the release.

Two months ago we explained very diligently, why courtesy of the strategic Russian Naval base in Tartus, Syria, the Russian regime will never, repeat never, let the Syrian government be replaced by various insurgent forces (very much like in other parts of MENA, which now are suffering from an absolute political vacuum and even greater corruption in the aftermath of the Arabian Spring). Subsequently there were various reports of Russian troops arriving in Tartus, both confirmed and denied by Russia, which were promptly forgotten: after all distractions from other, far greater problems can not become too repetitive or else the general audience will habituate. But all that was a month ago, and attention spans these days are short, so it is time to once again escalate, and sure enough yesterday the AP reported that Obama has approved an aid package to the Syrian rebels. Naturally, since this whole theater is all about severing strategic Russian national interests in the Mediterranean, and thus, into the Suez, Arabian Gulf, and ultimately Persian Gulf, German Spiegel reports of the immediate tat to America's tit (not to be confused with the Colombian legal prostitution tit, where it now appears whoregate is about to become a national pastime courtesy of upcoming congressional hearings involving the 12 men from Obama's staff who were Secretly Serviced on taxpayer dimes), as apparently yet another Russian-chartered, German ship has been intercepted carrying military equipment and munitions into Syria.

• ECB Seen Favoring Bond Buying Over Bank Loans (Bloomberg)
• Italians Rally Against Monti’s Pension-Overhaul Limbo (Bloomberg)
• Spain Cracks Down on Fraud as Rajoy Says Aid Impossible (Bloomberg)
• Europe’s Capital Flight Betrays Currency’s Fragility (Bloomberg)
• China’s Less-Than-Forecast 8.1% Growth May Signal Easing (Bloomberg)
• China Banks Moving to Lower Mortgage Interest Rates (China Daily)
• Fed Officials Differ on Need to Keep Rates Low to 2014 (Bloomberg)
• North Korea Confirms Rocket Failure (Reuters)
• Yuan Lending Set to Cross New Border in Pilot Plan (China Daily)

Heading into the US open, European stock markets are experiencing a mixed session with particular underperformance noted once again in the peripheral IBEX and FTSE MIB indices. The Portuguese banking sector specifically is taking heavy hits following overnight news from Banco Espirito di Santo that they are to issue a large quantity of new shares, prompting fears that further banks may have to recapitalize. The financials sector is also being weighed upon by a downbeat research note published by a major Japanese bank on the Spanish banking sector. Elsewhere, the Italian BTP auction was released in a fragmented fashion showing softer bid/covers and the highest yield since mid-January in the only on-the-run line sold today. Similarly to yesterday’s auction, the sale was not quite as poor as some as feared. Italy sold to the top of the range and as such, the Italian/German 10-yr yield spread is now tighter by 13BPS, currently at 361BPS. From the UK, the DMO sold 20-year gilts with a lower bid/cover ratio and a large yield tail, prompting gilt futures to fall by around 10 ticks after the release. Later in the session, participants will be looking out for US PPI data and the weekly jobless numbers.

• Fed's No. 2 Strongly Backs Low-Rate Policy (Hilsenrath)
• World Bank Cuts China 2012 Growth Outlook on Exports  (Bloomberg)
• BlackRock's Street Shortcut: Big Banks Would Be Bypassed With Bond Platform; 'Not Going to Cannibalize' (WSJ)
• George Soros - Europe’s Future is Not Up to The Bundesbank (FT)
• Fed May Have Aggravated Income Inequality, El-Erian Says(Bloomberg)
• Shirakawa Pledges Japan Easing Amid Political Pressure (Bloomberg)
• Spain’s Debt Struggle Opens Door to Sarkozy Campaign Message (Bloomberg)
• Iran Woos Oil Buyers With Easy Credit (FT)
• Syria Pledges to Observe Ceasefire (FT)

Since the 1980s, the U.S. Has Secretly Helped Japan Build Up Its Nuclear Weapons Program ... Pretending It Was "Nuclear Energy" and "Space Exploration" ...

As North America comes to market, there is a lot to digest. European equity markets are trading higher, with the FTSE MIB in particular outperforming after a volatile morning’s session, with bargain-hunting the active theme among investors. The first major risk event came and went with the Italian T-Bill auction. Participants were looking for a poor auction due to the ongoing Eurozone woes, and although bid/covers fell short and yields did increase, the auction was not as poorly received as many had feared.  As such, Italian and Spanish 10-yr spreads have tightened with the German Bund, with the Spanish spread closing in on 400BPS, with talk of domestic buying in the periphery and profit-taking from the last few sessions adding to the tightening effect.  A flashpoint of the day was the German Bund auction; results came in showing the auction to be technically uncovered, failing to sell the expected EUR 5bln. Analysts have pinned the poor auction on the Bund having record low yields providing a disincentive to buy the German security. Following the minutes after the auction, around 25,000 contracts went through on the Bund, spiking lower around 20ticks.

If yesterday was risk off on concerns Europe is sinking following last week's disastrous Spanish long-term auction, today is risk on after Italy managed to successfully place 91 and 361-Day bills, in line with expected amounts, if at much higher yields, and lower Bid To Covers. Specifically, Italy sold €3 billion in 91 day bills. The yield soared from 0.492% on March 13 to 1.249%, while the Bid to Cover plunged from 2.23 to 1.81. Same for the 361-Day Bill auction, where €8 billion in Bills (in line with target) were sold at 2.840%, double the yield of 1.405% from a month ago, and a Bid To Cover just modestly better: from 1.38 to 1.52. As usual the market continues to blatantly ignore the thin white line of bond issuance: every Bill and Bond auction that matures within the maturity (3 Years) of the LTRO will succeed: period. It is the ones maturity longer than 3 years - such as Spain's last week - that are the test. Comparing one to another is apples and oranges. But risk on don't care, and as a result futures are surging disproportionately, even as Spanish and Italian bonds are just modestly tighter following the bond results. But we will once again meander whack-a-mole style from auction to auction until the market is reminded of this little nuance. In other news, Iran just announced it is following its cut in Greek and Spanish exports, by halting exports to Germany next, while continuing the theme of 2011 Deja Vu, Indonesia's Aceh was struck two hours ago with a massive 8.7 Earthquake, with an 8.8 aftershock off Sumatra, coupled with a tsunami warning. Luckily, there are no initial reports of casualties or major damage.

Overnight Chinese trade data came in modestly disappointing, with imports rising just 5.3% on expectations of 9% increase. However one area where imports certainly did not decline, is commodities, and especially crude. As the chart below shows, Chinese crude imports in March were virtually unchanged from February's all time high (and same as January), and while the bpd number was slightly lower due to fewer days in the month at 5.50, one thing is clear: every ounce of oil that the rest of the world does not want, China will rapaciously import and stockpile. Good luck to Saudi Arabia with perpetuating the lie that it can boost its production by 2.5 million bpd to offset Iran. And even if it can, we at least know who will be waving it all in.