Market Update - 26 Feb 2013

• Treasuries rose, pushing 10-year yields down the most since November, as polls indicated the euroarea’s third-largest economy, Italy, may be left with a hung parliament, stoking refuge demand.

• The Italian elections have got the markets rattled after a reversal of an earlier risk rally. The Italian stock market had led equities higher across Europe and was up as much as 4% before collapsing to close only 0.7% higher. The Euro hit 1.3320, up 140 pips from Friday’s close before tanking to trade the lowest since Jan 10 at 1.3107, 200+ pips off the high.

• Early polls had suggested that the centre left would achieve a majority in the lower house however the Senate tally is a shocker and looks like leaving us with no overall majority. Deja vu: Greece?

• USDMYR sounds like an old broken record these few days with little action and we are hugging the 3.1000 bar and range trading around there. No change in range for short term 3.0700-3.1200.

• USDJPY chart looks scary, from hitting a high of 94.77 yesterday it plunged to 91.80 overnight as Kuroda which is likely the new BOJ governor is deemed an active FX interventionist…….honestly we have no idea where USDJPY is heading short term, it’s crucial as it dictates USD strength too but unless there’s a game changer, we expect USDJPY to trend towards 95.00-96.00 levels, brace for some serious volatility here.

• Apart from the above, news overnight was slow. The Chicago Fed National activity index and the Dallas Fed manufacturing index both dipped with the former turning negative for the first time since October.
  
• The benchmark yield reached a one-month low after the U.S. sale of $35 billion in two-year notes, with direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchasing the highest amount of the securities since October. U.S. debt gained as Italy may require another vote after the four-way race that ended today was poised to result in a divided parliament, spurring concern of renewed turmoil in European markets.

• The rest of Europe managed to stay in the black but the US indices are down 0.8% and hitting new lows as I type as they watch the Euro slide and uncertainty grow in Italy. Here we go again.

• Debt markets found a safety bid with US 10yr yields falling the most since the last Euro crisis, down 8.5bps to 1.88%. Gilts were bid too despite the downgrade and Sterling recovered slightly.