Monday Map Reading.

Monday, June 18, 2012

Despite our cynical look at the Euro-statement in last night's post, we are more optimistic than we were a week ago and apparently more so than nearly everyone we speak to. Our original plan on how to play Greece rested upon the Greek vote becoming a referendum on Euro membership, which it rapidly became. As everyone is pointing out, this result is no immediate fix to a country which is still reliant on EU aid, but the result does mean that the likelihood of that aid being severed is a great deal less. So that is good news. TMM are well aware that the Syrizapaths are still lurking in background and despite their change of rhetoric during the election campaign as they realised it WAS becoming a Euro debate and they had no hope at all if they stood on a general anti euro platform, they are still perfectly capable of dropping large clunky spanners in the machine of coalition government. But TMM think that Greece will still be in the Euro at the end of the summer and that time has indeed been bought so positional unwind associated with the Greek play can continue. Meanwhile the monocular of the markets can move back to other woes - Spain and friends.

With Spanish 10yr back above 7%, market reaction appears to be following a self re-enforcing map of last Monday when supposedly good news price rallies unwound within hours. Which is exactly what everyone is telling us to do today "Sell the rally". Well, at time of writing, the rally has been sold and last Monday's price map is being waived as evidence to maintain similar expectations. TMM though are looking to buy this dip instead. Of course it would have been nice to see the Europeans follow up this Greek result with support in Spain and Italian markets, whether by SMP, new announcements or ANYTHING to chase confidence higher, rather than leave it faltering. Even if Germany was seen to be handing out conciliatory offerings to the Greek people in gratitude for "doing the right thing". But nothing so far, in fact just the opposite - **GERMAN GOVT SPOKESMAN SAYS NOW IS NOT TIME FOR GIVING DISCOUNTS TO GREECE. But we should know better as one thing we have learned is that European policy is based on reaction rather than pro-action.  

Should we expect G20 to offer something more tangible?  No. G20 has rarely offered anything tangible so other than agreeing on the reinforcement of liquidity safety nets and behind closed doors threats to European representatives, TMM don't think it is possible for them to disappoint us more than we can already imagine. We really don't think we are alone in our lack of expectations so in fact the surprise bias from G20 should be to the upside.

So what do we trade? Well part of our background belief is that we are in a "bonds to equities" phase change which has been stymied by the current crisis. If the spring is released then the next big calamity is going to be in G7 bonds (read any of the current safe haven big bond markets - USTs, Gilts, Bunds) which may well be lead by the periphery safe havens (read the likes of Aussie and Swedish bonds). Even if this weeks FOMC gives QE III, (real or suggested)  - in this case we see equities taking the lion's share of the gains over bonds.

So let's start with beating up the Bund some more. The short term longs we put on in euro related risk last Tuesday we are willing to morph into medium term, and we are going to add some really unstable fuel to our portfolios - buying Spanish 10yr as the "Monday map" and renewed rumours of Spain having to cancel this week's auctions pushes yields over 7% again. However we will wait until the US has opened and played out their dose of rally selling.

Must dash - We are off to pay the remaining balance on our Greek summer holiday.

Posted by Polemic at 11:46 AM  


Hmm, when will the ECB nip that Spanish 10y in the behind and say, no further!

CV said...
1:32 PM  

agreed CV, all the ECB needs to do at this point is stand behind spain and italy..but i guess the line get grey at portugal, ireland etc

i dont get it..lend 2 years unlimited to banks, who use soverigns as risk free assets to pledge collateral but dont lend to the soverigns. To me the 2 and 5 year are more important as spain and italy will probably shorten up duration, you would think.

Not so sure G7 bonds are going to sell off hard anytime soon (>3%) but from where we are now, even back to 2.5% is a nice move

abee crombie said...
1:46 PM  

The monocular of the markets indeed. Although I would add regarding safe havens it is probably looking through the wrong end, making it impossible to see something like that until it is already upon you.

Corey said...
2:45 PM  

Over 7% 10y Spain rings all the alarm bells at the ECB, they can't let that drag on more than a few days. Probably getting close to BOLIVIAN time here.... ECB rate cut is coming and whatever Alphabet Soup they can come up with at those fancy lunches.

SO there was no Greek exit from the EURO after all. The Russians should have known better than to let a Greek get in behind them.....

LB wasn't laughing when Olof Mellberg scored twice but England wriggled out of the noose somehow....

Leftback said...
4:06 PM  

Correct Abee - tomorrow's auction is 2,3 & 5-year (no amounts yet). Last year's equivalent was 3.2 bn of 8 and 15. Even with that it'll be marginally more expensive to service with today's flattening.

One could imagine the ECB wanting to ride this out until we get to the shorts' home turf - August. Way more bang for their buck.

Then again, one can imagine almost anything.

Charles Butler said...
4:13 PM  

Correction. The tesoro has finally updated. Tomorrow is 5 bn in 12- & 18-month - not listed before. Last year's equivalent was 5.5 bn at, respectively, 2.70% and 3.25.

Thursday, 3 bn as described earlier.

Charles Butler said...
4:26 PM  

lets see if the ECB bazooka's are brought out... funny, when I first got interested in TEF, the bonds were holding, but the equity getting killed... now its the other way around (on a short time frame)

MoMo equities (FB, AAPL, PLCN etc) catching a nice bid, maybe setting up for some cup & handle breakouts soon, though I am a seller in Spoos soon for a quick trade

abee crombie said...
7:28 PM  

After all the iran strike hoopla, it seems that the oil market is getting burned.. the canary in the oilsands

abee crombie said...
9:01 PM  

LB expects not much of anything from Wizard Day, maybe a nod to future actions. A bit of a sell-off, perhaps deep enough to create some opportunity? Might be a good day to be hedging inflation vehicles like precious metals....

Leftback said...
2:45 PM  
Aethel Hard said...
7:28 AM  

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