by Chris Becker
Macro Wrap
Only one day left in May to sell!!! Or is this another buying opportunity? Stocks slashed, euro hammered, commodities (except gold – interesting…) dumped, bond yields (but only in the cleanest of dirty linen baskets – e.g Aussie 10 years at 2.93%!) going to new historical lows, peripheral bonds exploding.
There were several major catalysts that could explain what happened last night. First, a new poll from Greece showed anti-bailout parties gaining traction. Next the Spanish banking system is sliding dangerously, with question marks over their recapitalisation, with Spanish bond yields exploding to 6.7%. More importantly, the spread to German bunds is now over 540 points. As I quoted in morning links from the Bond Vigilantes, it only takes a few weeks after that spread blowout before international markets (i.e creditors) are howling for bailouts.
Is this the “Spaxit”? Bernie Hickey at interest.co.nz explains it well:
If Spain were to exit the euro, now known as ‘Spaxit’, then bond investors would not have to take any losses as they had moved their funds into Germany. The blowout in that spread shows the capital flight now underway from Southern Europe into Germany. The rise over the 500 basis point threshold is seen as crucial. The spreads for Greek, Irish and Portugese bonds were over 500 basis points for 16 days, 24 days and 34 days respectively before they were forced into bailouts.
Back in the USA, after yesterday’s disappointing Dallas Fed Manufacturing print from powerhouse (i.e WA of USA) Texas, the pending home sales index for April was also a let down, with sales decelerating by 5.5% – when consensus was expecting a 0.5% uptick. This is not good news as we head into what the Business Insider hyperbolists call “the busiest 48 hours in economic history” with a multitude of tier 1 data releases for US geeks, Vulcan economists and traders to get worked up about.
Today
Local data is strong today – CAPEX, building approvals and the most important of all, RBA private sector credit data (financial and lending aggregates). There’s nothing regionally except Japanese industrial production this morning, and then the avalanche begins tonight….hang on tight.
The SPI Futures are not pretty – at least a 1.2% drop for the ASX200 on the open to 4040 points.
Bonds:
- US 10 year Treasuries yields fell to 1.62% – a new low, with German 10 year bunds and UK 10 Gilts seeing massive bids, yields falling 9 and 13 points respectively to a very Japanese 1.26% and 1.64%
- Italy is now almost at crisis level of 6% with yields falling 16 points to 5.9%, whilst Spain is now at 6.6% – that’s a 160 point change since February:
Currencies:
- Safe haven once again – the US Dollar builds on its year highs, rising 0.57 points to be over 83 points, climbing over 12% since the August 2011 lows…..how’s your share portfolio doing in comparison? The USD ETF definitely has a place, yes?
- This strength is because the arse is falling out of the euro (which makes up 57% of the index) and as you can see on the monthly chart below, is seems to be breaking down:
- The Australian dollar was kicked in the guts falling over 1.5 cents against the USD after having a very small rally in the last couple of days, currently at 97.15 against the USD.
Equities:
- The Eurostoxx 50 lost 2% for the night, and not a bourse escaped the carnage. For interest, Delusional Economics told me this morning that the Cyprus market is down nearly 84% in the last 12 months! Peak in 2007 to now its down 97%!!!!!
- The majors (French CAC, German DAX and FTSE 100) were all off the same as the peripherals, around 2% or so. The Spanish IBEX 35 continues its dreadful run, down 29% for the year to date, down another 2.5% last night. Again I ask – I thought when a housing bubble bursts, interest rates come down, that stock prices go up?
- US markets didn’t escape the carnage and gave back the recent modest gains and then some. The Dow was off 1%, S&P500 1.4% and the NASDAQ 1.2%.
Commodities:
- Finally to commodities, the underbelly of the risk-on complex. WTI Crude fell almost $3 a barrel now at $87.48USD per barrel, whilst ICE Brent was off even more – down 3% or $3.20 to $103.47 bbl.
- Gold (USD) finally did its job as an anti-volatility currency, and after the usual selloff from London to NYMEX, rebounded after touching the intraday level of $1540 again to almost $1570 USD an ounce, where it remains this morning. Don’t get too excited though…
- Dr Copper took a big hit, down 2% in London, going negative for the year at $7463 a tonne, erasing gains of 12 percent from Jan-Feb.
- As for Iron ore, yesterday’s spot price continued to rebound, up another $2 per metric tonne to $134.80USD per metric tonne. However, 12 month swaps fell a little, suggesting the rally is still in question ala H&H. For context, remember it was almost $150 a tonne in mid April this year and around $180 for most of 2011. And yes, iron ore miners here can get it out of the ground at $30 a tonne…nice game.
Click here for our economic calendar.
Disclaimer: The content on this blog should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author has no position in any company or advertiser reference unless explicitly specified. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone who claims to have a qualification before making any investment decisions.