Feb 13. “Risk off” Friday as Greek situation dominates activity…
–Tens just can’t seem to stay above 2% yield as Greece is pushed to the precipice. The curve flattened by 8 bps to 170, as 2’s were unch’d and tens fell 8 to 1.97% yield. Red/gold pack spread dropped over 10.5 bps to 159.
–Clearly a “risk off” end to the week as stocks saw profit taking, dollar strengthened, and copper, which has had a 20% rally since mid-December low, came under selling pressure. AAPL however, eked out a small gain.
–The general level of US interest rates (and the curve) indicate a weakening economic environment. Other data also supports this conclusion, including an accelerating decline in US gasoline usage, the drop in US earnings estimates in Q1 from +8.0% to 0.0, and the falling Baltic Freight Index. (From Mish Global Econ Trends: “…petroleum usage is back to 1997 level and gasoline usage is back to 2001 level.”). The data on gasoline is rather startling; extremely weak. See links http://globaleconomicanalysis.blogspot.com/2012/02/huge-plunge-in-petroleum-and-gasoline.html and http://www.zerohedge.com/news/guest-post-why-gasoline-consumption-tanking
–On the other hand, economic data has been fairly firm. (We’ll see if big, back to back jumps in consumer credit translate into strong retail sales on Tuesday, expected +0.7). And equities have had a strong, steady, performance since the start of the year, especially emerging markets (EEM up about 15% since late December). I think the main catalyst for stocks has been increased liquidity, which is likely to decelerate.
