A Convoluted Picture

Man, it was all looking pretty good there for a while. Futures were up (courtesy of the new Monday effect, which funnily enough is the opposite of the old Monday effect), the Greek book-build went well, and AAPL earnings blew expectations out of the water. It was almost enough to make Macro Man forget the torch-and-pitchfork-carrying mob....

Well, not really. The Monday bounce was perhaps inevitable, or at least likely, after two strong down days at the end of last week. The Greek news was positive on the face of it yesterday- demand for the new 5 year issue reached more than €20 billion, with the authorities deciding to raise the issue size from €3 -€5 billion to €8 billion- but perhaps a bit of perspective is warranted.

At mid-swaps plus 350bps, the yield on the new issue will be more than 100bps higher than the yield on the current 5 year (an August 2014 bond) was at the beginning of the month/year. Indeed, it comes at a healthy premium to the yield of that current 08/14 bond. Still, beggars can't be choosers, and €8 billion will put a healthy dent into the chunky refinancing requirements that Greece faces this year, particularly in April-May.

Nevertheless, if this were truly a life-saver, one might have expected a bigger retracement of the recent pop in yields. Meanwhile, rumours that the ECB was (illegally) bidding in the auction did little to engender a sense that the worst is past, and suggestions that the Greek Treasury would deny allocations to short-covering bids from hedge funds will keep the market on its toes when the allocations are announced today.

Still, when Macro Man went to bed, equities/risk assets had just capped off a decent, if uninspiring, day and, if anything, seemed inclined to rally a bit after the Apple figs. So imagine Macro Man's surprise when he woke up this morning and saw new lows for Spoos, H shares (below), Shanghai property, a continued short squeeze in USD/Asia, and more flamingos coming under the cosh.

The catalyst appeared to be that the PBRC was implementing the last weeks's rumoured localized RRR hikes for certain banks today. Not hugely new news, but evidently enough to put the scare into locals; the key onshore 7 day repo soared 31 bps to a "whopping" 1.65%; as you can see below, the reaction in H shares was....not good.
While the near-term real economic consequences of the tightening are modest, it seems evident that one need look past the literal regarding China. Locals are evidently expecting a tightening, so any indications thereof are likely to have a disproportionate impact upon sentiment and, indeed, behaviour.

Most China-linked asset priecs are now comfortably down on the year, with the exception of soemthing like AUD/USD (though AUD/JPY is down), which would appear to be vulnerable in that regard. There are a lot of moving parts at the moment, and (unusually), each major market time zone can point at local factors that can significantly impact global risk appetite. The macro picture is thus unusually convoluted at the moment; given the ease with which markets are ebbing at the moment, it's hard to seeing it ending well.