The Big Picture » MacroNotes

Greeks vote to stay in euro

Peter Boockvar — Mon, 13 Feb 2012 13:20:03 +0000

Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by about 5 bps. However difficult these times are for Greece, there is no way around the shrinking of their public sector to a size their private sector can sustain and putting private sector wages on a competitive playing field with the rest of Europe. From a US stock market perspective, outside of Friday’s worry with Greece, the straight line upward move over the past two months reflected a lack of concern that a deal wouldn’t happen and today we’ll get to see what’s been priced in with Greece.

Another important macro weekend awaits

Peter Boockvar — Fri, 10 Feb 2012 13:40:45 +0000

“The Greek offer is not sufficient and they have to go away to come up with a revised plan,” said a spokesman for the German Finance Ministry. The Greeks must first have a plan that satisfies the Germans which this comment states they clearly don’t yet and then the Greek Parliament will vote on it this weekend. This said, whatever package gets voted on in Greece is basically an up or down vote on euro membership so we are entering another uncertain weekend for global markets. A failed vote will likely lead to a hard default which may be what the Greeks want at this point where a clean slate can be established. As we await, CDS is wider for a 2nd day for all US banks and the European iTraxx financial CDS index is wider by about 14 bps to 217 bps up from 192 on Tuesday. The other news of note is in Asia as Chinese loan growth data in Jan was well below expectations at 738.1b yuan vs the est of 1T yuan. Also, M2 rose 12.4%, below forecasts of up 13.7%. Because of the lunar holiday though, this figures were likely distorted. Their trade data was also likely impacted as imports fell 15.3%, much more than the expected decline of 3.6% while export fell a touch as expected. The loan and M2 data came out after the Shanghai index closed up slightly.

30 yr auction soft/another QE keg

Peter Boockvar — Thu, 09 Feb 2012 18:35:30 +0000

The 30 yr bond auction was soft as the yield was 1 bp above the when issued and the bid to cover of 2.47 was below the previous 12 month average of 2.68. Also, Direct and Indirect bidders took the 2nd least amount since Aug, leaving the rest to dealers. Bottom line, with another QE keg being brought today to the liquidity party, courtesy of the BoE and reminding me of, http://idiotflashback.files.wordpress.com/2009/12/belushi_in_animal_house-13.jpg, inflation expectations have been rising and the action in the 30 yr bond will reflect the most sensitivity to that. While statistically right now inflation seems benign to some, inflation in the quantity of money currently outstanding is unprecedented.

Handing out money instead of candy

Peter Boockvar — Thu, 09 Feb 2012 13:18:09 +0000

Like handing out candy to kids on Halloween, central banks keep handing out money to adults that continue to magically grow out of electronically generated trees. The Bank of England added another 50b pounds to its asset purchase program bringing the total to 325b pounds. As a percent of UK GDP, the BoE balance sheet is about 21% vs about 20% for the Federal Reserve and almost 30% for the ECB as a percent of the Eurozone economy (not all of EU). The ECB will add more at the end of the month with LTRO Part II and the Fed still has all guns blazing ready to go with more. It’s no coincidence as a result that the implied inflation rate in 5 yr US TIPS today is breaking out to the highest since July at 2.10% vs 1.5% last Sept. In Asia, Indonesia joined other Asian central banks and cut rates by 25 bps to 5.75%. The South Korea stayed on hold though. China’s Jan CPI unexpectedly jumped to 4.5% y/o/y from 4.1% but some are blaming the timing of the New Yr. PPI rose just .7% y/o/y. With Greece, it seems that the discussions are down to just one issue but a very large and important one, that of pension cuts and no deal looks likely today. With US markets, individual investors remain very bullish as AAII said Bulls rose to 51.6 from 43.8 while Bears fell to 20.2 from 25.1.

10 yr auction ok, what’s it say?

Peter Boockvar — Wed, 08 Feb 2012 18:36:07 +0000

The 10 yr auction was mixed but not enough a mover either way to alter market dynamics. The yield of 2.02% was a touch below the when issued but the bid to cover of 3.05 was just under the average over the last 12 months of 3.14. Direct and indirect bidders took a combined amount similar to the Jan auction. If there is a conclusion to draw, its that concerns about global growth are still obvious as why else would there be such demand for 10 yr Treasuries yielding 2%, especially with the implied inflation rate now in the TIPS market at 2.20%, the highest since August. The US economic data has improved but the bond market, in clear contrast to the equity market, seems more focused on Europe, the growth moderation in Asia and uncertain sustainability of US growth in light of another mediocre GDP report for Q4. Also, company comments on Q4 earnings calls didn’t point to robustness in economic activity. That said, stocks are more on the drug high of QE pump priming.

I’m tired of talking Greece

Peter Boockvar — Wed, 08 Feb 2012 14:02:28 +0000

With the debt deal in Greece just about done, what’s left we all know is the budget steps Greece needs to take in order to secure Bailout II funds and Papademos has another meeting with his government at 9am est to hopefully finalize. The ECB seems willing to chip in with about 11b euros of debt reduction as they hand their bonds over to the EFSF marked at the price they paid. We’re all tired of discussing Greece at this point and hopefully by Monday we won’t have to for a while. German exports in Dec fell 4.3% m/o/m, more than expectations of a decline of 1%. The drop was led by a decline in exports to the Eurozone specifically. Imports also unexpectedly fell. In Asia, the Shanghai index bounced back by 2.4% ahead of important inflation data tonight. In the US, the MBA said the avg 30 yr mortgage rate fell to a new low of 4.05% and it led to a 9.4% rise in refi’s to a level matching the highest since Nov ’10. Low rates did little for purchase apps as they were flat. II: Bulls 52.1 v 48.9 Bears 28.7 v 29.8

Carry or not to carry trade?/China view/Ben

Peter Boockvar — Tue, 07 Feb 2012 13:25:10 +0000

The key result of the ECB’s LTRO was a dramatic decline in the bond yields of Europe, especially Italy and Spain. Speculation of course was that the borrowing banks were playing the carry trade with the 1% financing but with 500b euros still being deposited overnight with the ECB we’re not exactly sure. The CEO of the Italian bank Intesa did say today though “We will use part of ECB funds to buy Italian government bonds, considering that there are significant amounts expiring this year.” Since banks got slammed in Q4 because of their sovereign holdings, the size I believe has and will be modest and banks will instead solidify their 2012 funding needs. German IP in Dec fell almost 3% vs expectations of flat with Nov. In China, the Ministry of Industry and IT gave its view of the world, “the global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile.” The Shanghai index did close down 1.7%. The Reserve Bank of Australia unexpectedly left interest rates unchanged and the Aussie$ is rising to a 6 month high vs the US$ in response. Lastly, Bernanke repeats his testimony in front of the Senate and we’ll see if Friday’s Payroll report changes his thoughts on the economic outlook and monetary policy.

Greece’s hourglass running out of sand

Peter Boockvar — Mon, 06 Feb 2012 13:27:48 +0000

Greece’s hourglass is running out of sand as officials scramble to turn it over again. As pressure continues to be brought upon Greek politicians to agree to more budget cuts before they get more bailout money and a PSI agreement remains elusive however close the parties continue to say they are to a deal, the Greek 1 yr yield is rising above 500%. The 14.5b euro bond that matures on March 20th, which is the focus of everyone, is down almost 2 pts to .38 on the euro. The euro is lower in response and while Portuguese yields are moving higher in sympathy, Italian and Spanish yields are mostly lower. The amount of money deposited at the ECB overnight rose to a 2 1/2 week at 511b euros and it’s the 2nd largest amount on record. European banks thus seem more interested in prefunding their 2012 debt maturities as they also shrink their balance sheets, rather than fund business lending growth. Germany factory orders were better than expected in Dec.

Payroll data a great surprise, do we really need more QE?

Peter Boockvar — Fri, 03 Feb 2012 13:59:00 +0000

The US economy added a net 243k jobs in Jan, 257k of which was in the private sector and both are well above expectations of 140k and 160k respectively. Revisions to the two prior months were up by 60k and the unemployment rate fell to 8.3% from 8.5% as while 508k people joined the labor force, a whopping 847k jobs were added in the household employment survey. The U6 unemployment rate fell to 15.1% from 15.2%. Manufacturing added 50k jobs, 38k more than expected and construction saw gains of 21k. Job gains were also seen in retail, business services, education/health, and leisure/hospitality. Total government employment fell by a net 14k. The avg workweek was 34.5 vs est of 34.4 and the avg duration of unemployment did tick down to 40.1 from 40.8. Remaining a negative, the participation rate fell to a new low of 63.7% from 64.0% and avg hourly earnings rose just 1.9% vs CPI at 3.0% and the PCE at 2.4%. Bottom line, this is the best payroll gain since May ’10 with an amazing gain in the household survey and the internals of the report also look mostly positive. If only Bernanke gave his testimony after today’s report, we’d see whether he would have stuck to the 2014 time frame for zero rates and the possibility of more QE. In terms of market reaction, while today is just one number subject to multiple revisions, we’ll see whether the initial enthusiasm will last if there is less of a possibility of more QE, arguably the main factor keeping this market so levitated over the past few months.

“All we need is just a little patience…” still

Peter Boockvar — Thu, 02 Feb 2012 13:25:18 +0000

“All we need is just a little patience” for a Greek bond deal to get signed already. Hours have turned into days which have since shifted into weeks and its turned us all into market spectators and not players, hence the pathetic trading volume. The WSJ highlighted the remaining issues as Oli Rehn, EU head, said this morning that things should wrap up in ‘coming days.’ In the mean time, the Greek 1 yr bond is at a new low at .25-.28. The market is also in a tug of war between the feel good drug of central bank largesse (still) on one hand, and the most challenging earnings season in years on the other. For now of course central banks are winning in lifting asset prices and the Feb 29th LTRO Part II will likely sustain that for a period of time until the market goes into withdrawal and we do this all over again. Meanwhile, the current batch of LTRO continues to be redeposited back at the ECB as they reported this morning that 486.4b euros came their way vs the 489b euros they lent out for 3 yrs. Spain sold debt with maturities from ’15-’17 and while they sold a touch more than the maximum target, yields are moving higher. In the category of ‘you’ve come a long way baby,’ the Irish 2 yr yield is back below 5% at 4.71%, a 1 yr low and down from 23.2% at the panic July ’11 high. Portuguese yields are also in off their highs. In the US, individual investor sentiment has somewhat moderated its recent extreme bullishness as Bulls fell to 43.8 from 48.4 and Bulls rose to 25.1 from 18.9.