G3 Recap 3-15-11

Main Items:

  • Japan’s Daiichi plant’s reactor 2 experienced a likely breech of the 2nd containment vessel. Reactor 4 caught fire and spewed radioactive material into the air.
  • Concern is now moving to the fuel-cooling pools. Each of the crippled reactors in Japan has one cooling pool sitting atop the main concrete structure. Depending on the freshness of the spent fuel, the water would boil off to a dangerous level in another week or two. A 1997 study by the Brookhaven National Laboratory on Long Island described a worst-case disaster from uncovered spent fuel in a reactor cooling pool. It estimated 100 quick deaths would occur within a range of 500 miles and 138,000 eventual deaths. The study also found that land over 2,170 miles would be contaminated and damages would hit $546 billion. – NYT
  • Baharain declares a 3 month state of Emergency after 2 protesters died and Saudi Arabian troops were called in to help suppress the unrest.
  • US Import Price index jumped to 6.9% YoY in Feb vs 6.3% expected and 5.3% previously. Energy prices drove the surprise, as expected. Ex fules, import prices rose 0.3% MoM.
  • Empire manufacturing improved to 17.5 in March vs 16.1 expected and 15.4 previously.
  • Canadian Unit Labor costs jumped 0.6% QoQ and took the 1 year increase to 1.5%.
  • The PBOC raised the yield on 1-year bills for the first time in 4 sales
  • No surprises from the Fed minutes, although the line “economic recovery is on firmer footing” and “labor market appears to be improving gradually” were interpreted hawkishly.

Overseas Data:

  • German Zew Survey declined to 14.1 in March vs 15.9 expected and 15.7 previously. The Eurozone measure improved to 31 vs 29.5 previously.
  • Spanish Banks cut their reliance on the ECB by 6bn in February to 50bn, compared to a peak of 140bn last year. The repo market for sovereign Spanish debt is open, and is now cheaper than funding from the ECB. However, Portuguese usage of ECB lines was unchanged at 41bn.


  • All bets on Japan are now off, given the uncertainty and the large tail risk. However, the outlook for US growth into year end remains bright.
    The FOMC minutes was really a non-event. Of course the Fed was going to upgrade its assessment of the economy – no one should be surprised. The selloff likely occurred as a result of an equity market that had rallied 20pts off its overnight lows. It doesn’t change the fact that the Fed isn’t going to hike until late 2012 at the earliest.
  • I put out a recommendation to go long the front end of the UK on 1/24. That trade should be in the money now, regardless of the trade iteration, and despite the fact that spot yields are higher, because the carry/rolldown was so favorable. While it’s possible that rates could rally further, charts are showing the type of prints that often suggest local extremas. So it’s time to take profits… a 3m1y swap should show a 15bp profit based on my calcs.