Intraday Market Thoughts

Euro Stabilizes Despite Weak German Auction

by Patrik Urban
Apr 11, 2012 13:23

Mixed Italian auction; weak demand in German auction; Spanish industrial production declined; German WPI fell. Canadian housing starts push up, US import prices and Beige book. Yesterdays Premium piece warned about rising VOX/EUR 1-mth Vols & sovereign yields, along w/ latest positioning in AUDUSD, EURJPY and EURUSD. See more below.

USD is marginally lower against all majors. European equities are gaining over 1% and the relative strength winners are NZD followed by AUD.

Despite the ongoing uncertainties, market sentiment improved in the middle of the Asian session sending USD and JPY lower. However, it seems unlikely that the market would turn and the risk on attitude would last.

The eagerly anticipated Italian auction had a mixed result. Italy was able to reach a full take up by selling 3 and 12 months bills worth of EUR 11 bln but the average yields rose considerably. Higher yields and the ECB deposits that rose to EUR 787.96 bln both indicate increasing market tension. Italian 10 year yield declined from 5.73% to 5.51%.

Spanish 10 year yield rose above 6% earlier today which was the highest level since mid December but has declined a bit and currently stands around 5.89%. Spanish industrial production fell -5.1% in February from previous -4.3% y/y which marks sixth month of declines.

Germany sold 10 year bund totaling EUR 3.87 bln out of EUR 5 bln target. The average yield declined to 1.77% from 1.83% but cover fell to a mere 1.1 from 1.4. This auction was technically uncovered and it was the first case since 11/2011. German wholesale prices declined in March to 0.9% from previous 1% (2.2% from 2.6% y/y).

Canadian housing starts rose to 215K in Mar from a evised 205K, vs esxpectations of 200K.

US March import prices are due at 8:30 ET and are seen higher at 0.9% from 0.4% m/m but lower at 3.4% from 5.5% y/y. Crude oil inventories that are due at 10:30 am are anticipated at 2.1M barrels from previous 9M barrels.

Market volatility will increase at 2pm when the Beige book and federal budget balance is due. The deficit is seen narrower at USD -202 bln from previous USD -231.07 bln.

Last nights PREMIUM INTERMARKET INSIGHTS, we chart EQUITY & FX VOLATILITIES vs SOVEREIGN YIELDS as well as the latest trades in EURUSD, AUDUSD, EURJPY, USDCAD, gold, silver and US crude (May contract). Direct Access to these Premium Insights is found here: sub01/access/?a=625 Non-subscribers, can go here:


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