Daily Musings and Music of a Euromarket Professional

Uncomfortable as it may be, being aware of sitting on a time bomb shouldn't keep us from being able to laugh about it - and to listen to some music!

Daily musings of a euromarket professional


Friday, 17 August 2012

17 Aug 2012 – “ Positive Vibration " (Bob Marley, 1976)


17 Aug 2012 – “ Positive Vibration " (Bob Marley, 1976)

Yesterday’s rush into the close on US figures that were obviously seen as either bad enough to warrant some more QE hopes or good enough to warrant organic growth was accelerated seemingly by Merkel comments who reiterated, of course, Germany’s support for the Draghi plans. The reminder of conditionality somehow was lost, as this remains a big unknown so far. Whatever. Markets, especially equities, are sprinting for Gold in levitation. So be it. What is clear is that despite no real nor supportive news, Periphery debt fared quite well in an empty market and has come back with a vengeance (and triggering a 7% IBEX bounce since last Friday’s close, of which 5% yesterday). Empty markets. Patchy liquidity. Sharp movements at times. 
US equities wringing out yet another winning session with the S&P pushing further away from the 1400-mark. Asia still split, like yesterday, with buoyant Japan and Australia, and the others far less convinced that whoever’s stimulus will outplay slowing growth.
European markets opening about unchanged from yesterday’s close. Had equity tentatively try a 0.5% bounce, which didn’t completely hold and then settled positively sideways. Not much in European govies, where stand-still seemed to be the best solution to start the end of the week. Flat everywhere. Curve unchanged. Spanish 10s trying to tickle whether it is possible to hold below 6.50%, for the first time since early June, and 3 bp tighter. Credit still feeling heavier than equities and a tick better to join the party. On the commodity front, Brent giving back a little and back to 114 (from yesterday’s venture past 116) and Copper catching back up.

On the data front, German PPI printing lower than expected at flat (fcst +0.3% after prior -0.4%) MoM and down to 0.9% on YoY basis.
On the titbit front, Finnish Foreign Minister’s musings about a possible EUR break-up and trust issues were confirmed as being solely personal by the his European Minister colleague. Hmmm. No real impact.
Spanish bad loan numbers rising to an unprecedented level of 9.42% in June (up from 8.95%) didn’t dent Spanish bonds with 10s at 6.45% and 2s down over 15bp to 3.72%. No real impact.
Markets taking any such news as additional must-have accelerators of a bail-out. Time being of the essence.
But what if things just drag on? MMOG of Chicken. ECB tries to stare down the Spanish trying to stare down the Germans, skipping their cousins in mind (Austrian FM in line with Finns thinking aloud about the possibility to have countries leave the EZ; Dutch Socialists, leading in polls ahead of the 12 Sep elections, thinking about a referendum), which is an error, and all trying to stare down the markets’ distrust nevertheless.

Midday levels by and large just unchanged in lowest volatility (like in it’s not even a range). Non-Bunds maybe a tick softer. Curves unchanged. 
Spain again tighter and with its 2s dragging Italian 2s along. Both curves steeper by 10bp.
Credit eventually a tick tighter. Equities a tick better, but slightly below morning slight highs. Italy and Spain indices up 1.75%. EUR sideways.
Noticeable lunchtime development with buying in Bunds (down to 3 to 1.50%), dragging Hard and Soft along, and selling in BTPs (+3) in an otherwise static market.

Michigan Confidence at 73.6 beat expectations of an unchanged 72.3, followed by Leading Indicators at +0.4% as well beating consensus of +0.2%, although prior data was revised down to -0.4% from -0.3%. Positive vibrations. Did send EUR lower to test the 23 handle. One should of course bear in mind that the better the data, the more likely QE3 won’t happen. Hence an overall muted response. Chilling out.
Overall, a quiet cosy week.

Bunds at 1.49% (-4). BKO at -0.047% (-1.1). OBLs at 0.41% (-5). EGBs eventually close the day on a tighter note, given an extra little kick once US equities fell back to unchanged.
Spain at 6.42% once more firm, but missing the 3rd 10bp decline in a row. Still, confirming below 6.50% for the week and below 500 to Bunds. Italy on the softer side in 10s, but doing fine in 2s. Both curve now at 275. Spanish 2s 3.66%.

New Issues supply from Dutch AAA Agency NWB with EUR 1.5bn 7 YRS at MS +25 and JPM entering as well the senior market with EUR 1.5bn 10 YRS printed at MS +100, with books 3 times the amount.

There won’t be any report in the coming 10 days.

Closing levels:
10 YRS Yields: Germany 1,49% (-4); Luxembourg 1,69% (-5); Finland 1,76% (-1); Netherlands 1,85% (+1); Swaps 1,85% (-5); EU 1,94% (-4), Austria 2,07% (-2); France 2,12% (-2); EIB 2,14% (-5); EFSF 2,21% (-6); Belgium 2,58% (-1); Italy 5,78% (+0); Spain 6,42% (-8).

10 YRS Spreads: Luxembourg 20bp (-1); Finland 27bp (+3); Netherlands 36bp (+5); Swaps 36bp (-1); EU 45bp (+0); Austria 58bp (+2); France 63bp (+2); EIB 65bp (-1); EFSF 72bp (-2); Belgium 109bp (+3); Italy 429bp (+4); Spain 493bp (-4).

EUR swap curve 2-5 YRS 50bp (-2,0); 5-10 YRS 80bp (unch) 10-30 YRS 46bp (unch).
2 YRS German BKOs closed -0,047% (-1,1) and 5 YRS OBLs 0,41% (-5).

Main at 145 from 146 (tighter by 0,7%); Financials at 242 after 242 (unch). SovX at 241 from 240. Cross at 583 from 585.
Stoxx Futures at 2467 / +0,5% (from 2454) with S&P minis at 1413 (+0,4% from 1408, at European close).
VIX index at 14,2 after 14,9 yesterday same time.

Oil 95,8/113,9 (WTI/Brent) from 95,0/116,1 (+0,8%/-1,9%). Gold at 1617 after 1616 (+0,0%). Copper at 342 from 336 (+1,8%). CRB at EU COB 304,0 from 302,0 (+0,7%).
Baltic Dry down a small 1% to 714 from 720. Multi-year low at 647 now 9.4% away. Next week’s business, probably.

EUR 1,231 from 1,236

ECB deposits at EUR 322bn after EUR 351bn.

Greek bonds guesstimates: still static at 2023s at 24.25% and 2042s at 20.00%

All levels COB 17:30 CET

On the week (compared to Fri 10 Aug COB):
As during most of the week, players kept chasing "Rainbows & Pots of Gold" last Friday (Bunds 1,38% -7; Spain 6,87% +5; Stoxx 2424% -0,5%; EUR 1,229), which eventually ended a split week with Germany getting back some luster, Spain drifting wider, but with equities sprinting for Gold. "Can You Feel It?" (Bunds 1,40% +2; Spain 6,81% -6; Stoxx 2414% -0,4%; EUR 1,234), we asked on Monday, as it was difficult to find a beat in a fairly listless market. Still, things started to fare better for the Periphery. Tuesday was about the markets simply "Not Fade Away" (Bunds 1,47% +7; Spain 6,71% -10; Stoxx 2431% +0,7%; EUR 1,232), but GDP readings in Germany and France, which came out just a tick better than expected, and US figures bad enough to reignite QE hope did some magic on Risk. Bad is good, these days. Wednesday closed in half of Europe. We clearly enjoyed trippy and very slow moving "Moments Of Love" yesterday (Bunds 1,53% +6; Spain 6,5% -21; Stoxx 2454% +0,9%; EUR 1,236- all compared to Tue), coming back from the Assumption holiday, which closed half of Europe (leaving the other half squeezing BONOs by 10 bp) the day before. With no real news, the day dragged along before suddenly closing up in a rush. Good news is sometimes good these days.

So this was a quiet week overall. Quiet songs. Chill outs and positive vibes. Fitting for the summer low point in activity. Political players are starting to reappear, but nothing too forcefully said, nor stated. Probably just happy of the equilibrium. Stress is easing. Germany has therefore been shoved back up to the symbolic 1.50% area. Not much further though. It take a toll on the Hard Core, with exception of the lesser liquid Luxembourg bond, victim of compression trades, be it from the far end or from the Soft Core. Belgium caught in between and soft, too. Not Hard Soft enough and probably spread against the Periphery, too. Last week had been an Italian week, this week it were Spanish 10s that were the big winner, down 45 bp to 6.42%, through the rather symbolic 6.5% barrier and especially through the 500 to Bunds (spread down over 50 bp to the 490s). Good catch-up on Italy, now only some 60 bp tighter. Sitting in the same boat. After some initial flattening, the Spanish short end caught up with the positive vibes, too, and the curve steepened back. Both Italian and Spanish 2-10s now around 275 (22 wider for Spain on the week and about unchanged for BTPs). Had closed in the 290s a fortnight ago.
Equities squeezing out a small 2% on the week (on a broad European scale, more for the Periphery), to a 5-month high, back to early March, but Credit feels less a leader than a soft follower the Main back to early May levels. Talking about rearview BONOs are back to May levels and BTPs, too, but the first still 100-150 bp above this year lows and Italy likewise above its 4.90s in 10s. German 1.50s broken to the downside for the first time mid-May, down to the 1.20s. Then hit 1.60%, as we did this week, before retesting the lows. For the moment, we remain in a range. And the all-clear has not been rung.
Commodities broadly unchanged, although we did note the spike above 116 in Brent to a new historical high paid in EUR. The latter eventually closed the week roughly unchanged.

10 YRS Yields: Germany 1,49% (+11); Luxembourg 1,69% (+4); Finland 1,76% (+14); Netherlands 1,85% (+19); Swaps 1,85% (+4); EU 1,94% (+2); Austria 2,07% (+5); France 2,12% (+5); EIB 2,14% (+3); EFSF 2,21% (+0); Belgium 2,58% (+8); Italy 5,78% (-11); Spain 6,42% (-45).

10 YRS Spreads: Luxembourg 20bp (-7); Finland 27bp (+3); Netherlands 36bp (+8); Swaps 36bp (-7); EU 45bp (-9); Austria 58bp (-6); France 63bp (-6); EIB 65bp (-8); EFSF 72bp (-11); Belgium 109bp (-3); Italy 429bp (-22); Spain 493bp (-56).

EUR swap curve 2-5 YRS 50bp (+5,0); 5-10 YRS 80bp (+2,0) 10-30 YRS 46bp (+1,0).
2 YRS German BKOs closed -0,047% (+3) and 5 YRS OBLs 0,41% (+7), on the week.
Swiss 2-years down to -0.35% from last week’s -0.38%, pretty much in line with BKOs.

Main at 145 from 149 (2,7% tighter); Financials at 242 after 246 (1,6% tighter). SovX at 241 from 248. Cross at 583 from 589.
Stoxx Futures at 2467 / +1,8% from 2424 with S&P minis at 1413 / +1,2% from 1396, at European COB last week.
VIX index at 14,2 after 15,2 last week.

Oil 95,8/113,9 (WTI/Brent) from 92,7/112,2 (+3,4%/+1,5%). Gold at 1617 after 1623 (-0,4%). Copper at 342 from 339 (+0,9%) . CRB closes 304,0 from 302,0 (+0,7%).
Baltic Dry has gone back in hiding and ended this week at 714 from 774, down by 7.8% ( after the prior week’s 9% decline)
As a reminder it fell pretty much straight down from a 2173 high in Oct to the 1800-900 area by the end of 2011, then straight down from 1930 to 647 by early Feb, recovered to 1165 early May, plunged back to 872 by early June, then rebounded to 1162 early July and has been correcting since – on a daily basis. Multi-year low at 647 just 9.4% away. Given the latest rhythm that’s next week’s business.

EUR 1,231 after 1,229 last Friday

Greek bonds guesstimates: Just didn’t move throughout the week and put with 2023s at 24.25% and 2042s at 20.00%.

All levels Friday COB 17:30 CET

Next Week:
Longest European government supply will be German 2 YRS on Wednesday. The Spanish 18m bill auction will need to be followed. Especially light week on European hard data outside PMIs on Thursday, which will be a test of whether the latest stability period has changed the outlook of things (Or whether people didn’t notice, because away…).
US data pack likewise on the lighter side.
No supply. No data. Up to drift to whatever winds might be blowing… Toss a coin?

EZ: Mon Construction output Thu Composite PMI fcst 46.4 after 46.5 Manu 44.2 after 44.0 Services 47.8 after 47.9 Consumer Confidence fcst unchanged -21.5
Germany: Thu Final GDP & breakdown Man PMI fcst 43.5 after 43.0 Serv PMI fcst 50.2 after 50.3
France: Thu MPMI fcst 44.0 after 43.4 SPMI fcst 50.2 after 50.0
Spain: Thu PPI
US: Mon Chicago Fed Tue Nothing Wed Existing Home Sales FED Minutes Thu Claims, PMI and New Home Sales, Fri Durable Goods
Asia: China Thu China PMI

There won’t be any report in the coming 10 days.

Click link on title or below for today’s musical support:
And still, Reggae tends to be boring… Fitting for ending  this week 

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