Pressures Ease After Alcoa

The global capital markets have stabilized following the release of the somewhat better than expected earnings report from Alcoa, which kicks off the US earnings season.  Although Asian shares were marked down, with the MSCI Asia-Pacific Index off about 0.7%, the European markets are recovering, with financial sector leading the way (at pixel time up 2% vs Dow Jones Stoxx 600 up 0.8%).  Peripheral bond markets are mixed, but Spanish and Italian bonds ae bouncing back from yesterday's steep decline.  Portugal's bonds are bucking the trend and 10-year benchmark yield is up 25 bp and up 100 bp since the end of March. 

The euro has pushed through yesterday's highs, but the short-term technicals suggest there may not be much more upside in North America today.   The one cent bounce in the euro from yesterday's lows will likely be seen as a new selling opportunity.  Sterling's technicals look a bit better.  Support yesterday held near $1.58 and the bounce took it to $1.5940.  Support now is seen near $1.5880.  There was talk of Eastern Europe and Asia names behind the sterling demand. 

Australian home loans fell 2.5% in Feb; not as bad the as the 4.0% decline the Bloomberg consensus had, but a sharper decline than Jan's 1.1% fall.  First thing tomorrow in Australia, the March jobs data will be reported.  A 6.5k gain is expected after a 15.4k job loss in Feb.  It would take a significantly stronger number to change the market's views about a May rate cut.  The Australian dollar held support near $1.02 in early Asia and is also seeing some corrective gains.  Resistance is seen in the $1.0320-40 area. 

The real news stream from Europe does not seem to be particularly good.  Italy had a bill auction and given the recent peripheral pressures, it is hardly surprising that yields rose.  Perhaps the magnitude of the increase was a bit surprising with the 1-yr bill yield rising to 2.84% from 1.4% at the mid-March auction.  The 3-month bill yield rose to almost 1.25% from 0.49%.  Italy seeks to raise another 5 bln euros tomorrow via a bond auction. 

While Italian and Spanish benchmark 10-year bond yields are off 15 and 10 bp respectively at pixel time, the action in the CDS market is less inspiring.  The price of the Spanish CDS is actually a bit higher and Italy's is only slightly lower.  This would seem to support the idea that the ECB was notably absent yesterday and today the French board member Coeure seemed to hint that the ECB may indeed resume its bond buying program.  Coeure does not speak for the ECB and one will easily recall the German opposition to the first time (Weber departs) and the resumption (Stark resigns). 

Spain separately reported a slightly worse than expected Feb industrial production figures that are however particularly noteworthy because it warns that the Spain's contraction is still accelerating.  The year-over-year pace accelerated to -5.1% from -4.3% in January (on a workday adjusted basis).  The risk is that the official guidance for Q1 GDP to be in line with Q4 '11 GDP (-0.3%) is  bit more optimistic than the data is suggesting. 

The dollar tested support near JPY80.60 and largely held.  This seemed to be more a function of cross rate activity than real enthusiasm for the greenback in Europe.   Look for the bounce to run out of steam in the JPY81.00-25 area.