Euro Hangs Tough as Risk Evaporates

European peripheral yields surged on Tuesday as Italian bank stocks were battered. The yen surged and carry trades were unwound but the euro was somewhat unscathed. Japanese machine orders rise for the 2nd straight month. Australian consumer confidence are highlights of Asian trading. In our Tuesday’s PREMIUM INTERMARKET INSIGHTS, we chart EQUITY & FX VOLATILITIES vs SOVEREIGN YIELDS as well as the latest trades in

Crisis-redux was the theme throughout the day. Spanish and Italian 10-year yields rose more than 20 basis points to 5.99% and 5.69%, respectively. In early March, both were trading with a 4-handle. The market fled to the safety of German sovereign debt, sending yields there to record and cycle lows.

There was no single catalyst but talk about regional austerity in Spain contributed, as did slowing import growth in China and the continuing fallout from Friday’s non-farm payrolls report. It was the first trading day in Europe after the Easter holiday.

Italian bank stocks were the hardest hit, with UniCredit falling nearly 8% and the broadly MIB index closing down 5%. Stocks throughout the continent fell 2% and the S&P 500 closed down 1.6%.

The euro was surprisingly resilient, continuing in a choppy trade between 1.3050 and 1.3150. There was chatter about flows and European funds pulling in funds to shore up liquidity. If yields continue to rise, however, it will be impossible for the euro to hold the line.

Asia-Pacific Preview

Japan Feb core machinery orders rose 8.9% y/y following 5.7% in Jan, posting their 2nd consecutive monthly rise. At 0030 GMT, Westpac releases its April report on consumer confidence in Australia. The prior reading was 96.1. An hour late, February Australian home loan data is expected to show a 4.0% contraction.

In our Tuesday’s PREMIUM INTERMARKET INSIGHTS, we chart EQUITY & FX VOLATILITIES vs SOVEREIGN YIELDS as well as the latest trades in EURUSD, AUDUSD, EURJPY, USDCAD, gold, silver and US crude (May contract). Direct Access to these Premium Insights is found here: http://ashraflaidi.com/products/sub01/access/?a=625 Non-subscribers, can go here: http://ashraflaidi.com/products/sub01/