Overnight Sentiment: Nervous With A Chance Of Iberian Meltdowns

As traders walk in this morning, there are only two numbers they care about: 522 bps and 6.15% - these are the Spanish 5 year CDS and 10 Year yields, respectively, the first of which is at a record, while the second is rapidly approaching all time wides from last November. Needless to say Europe is no longer fixed. And yet despite a selloff across Asia, Europe is so far hanging in, as are the futures courtesy of a persistent BIS bid in the EURUSD just above 1.30 to keep the risk bottom from falling off. It remains to be seen if they will be successful as wrong-way positioned US traders walk in this morning.

Previewing key macro events are SocGen, Citi and Morgan Stanley via Bloomberg. As expected, all are on pins and needles ahead of Thursday's 2 and 10 year bond auctions.


  • This Spanish crisis won’t go away while everyone is getting stressed about it, Kit Juckes says in note; Thursday’s 2-yr, 10-yr bond auctions in Spain will probably become a magnet for worry
  • Assumes “risk will be off,” EUR/USD 1.30-13430 range will finally be broken


  • Week ahead may not provide any meaningful respite; renewed focus on the periphery means Spanish bond auctions, G-20 meeting of finance ministers on Thursday high on the agenda
  • Indications of weak investor demand for government debt may translate into higher Bond yields; in the absence of ECB purchases may add to headwinds for the single currency
  • At times of market uncertainty safe haven currencies USD, JPY could remain supported; outperformance of U.S. economy will remain an important driver of EUR/USD via its impact on EUR/USD rate spread
  • An escalation in investor fears could weigh on the likes of SEK, CAD and AUD

Morgan Stanley:

  • EUR/GBP on the selling list, Hans Redeker says in note; says while EMU deals with the effects of its debt turmoil, U.K. is seeing signs of labour and housing market stabilization
  • Ahead of tomorrow’s 12-mo, 18-mo Spanish bill auctions mkts will watch sovereign credit spreads carefully; with bank shares under selling pressure, the willingness to add to the carry trade may be reduced
  • It has become clear IMF unlikely to agree to increase support for Europe at next weekend’s meeting; the EU130b Greek aid package will be affected if IMF doesn’t agree to increase support.

Below is a detailed summary of overnight action from Bank of America

Market action

Overnight, most Asian equity markets sold off overnight as Asian investors worried about weaker consumer sentiment in the US and the unresolved debt crisis in Europe. The worst performing market was the Japanese Nikkei which fell 1.7%. The Korean Kospi lost 0.8% while the Hang Seng fell 0.4%. The Shanghai Composite also finished lower losing 0.1%. On the flip side, the Indian Sensex managed to close up 0.3%.

After starting the day lower European equities are now trading 0.4% higher in the aggregate. The major European equity markets are trading roughly in line with the broader aggregate. The one market that is noticeably higher is the French CAC, up 0.6%. At home, futures are pointing to a modestly higher opening. The S&P 500 is set to rise 0.3%.

In bondland, Treasuries are trading flat except for the long bond which is 1bp higher at 3.14%. In Europe, the UK gilt and the German bund are both rallying with their yields down 1bp to 2.03% and 1.72%, respectively. The yield on the Spanish 10-year yield has crossed the 6% mark after rising 12bps to 6.07%. Italian yields are rising as well with the 10-year note currently trading at 5.58% after climbing 8bp.

The dollar is strengthening in the currency markets. The DXY index is up 0.2%. The strong dollar is helping push the price of commodities lower. WTI crude oil is off 42 cents to $102.42 a barrel and gold is down $9.05 an ounce to $1,649.05.

Overseas data wrap-up

Quiet day, there was nothing on the overseas data calendar that caught our attention.

The week's events

We will be watching the March reports on retail sales and housing starts for any lingering signs of a positive boost from the recent warm weather. The reported value of retail sales should also benefit from higher gasoline prices; conversely, weaker auto sales should act as a drag. We also are looking for initial jobless claims to tick back slightly to 370,000 after their surprise jump for the week of April 7th to 380,000 -- some of this increase may be due to the timing of the Easter holiday. Finally, with the next FOMC policy meeting scheduled for April 24 and 25, the calendar of Fed speakers is relatively light.


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