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


Tuesday 11 September 2012

11 Sep 2012 – “ Here Comes the Rain Again" (Eurythmics, 1984)

11 Sep 2012 – “ Here Comes the Rain Again" (Eurythmics, 1984)

The US closed on an “off day”, as rarely these days. Unlike in past sessions, when the European close was used to trade up thereafter, the S&P steadily lost ground during the evening. No real news. Greece worries. Waiting for the priced-in QE announcement and questioning what happens next. Then again, it remains by and large a 4-year high and this entitles to some breath-taking. Only data set were contracting Consumer Credits. Asia likewise down about 0.5% overall.
New Yuan loans in China expanded more than expected to CNY 704bn (from CNY 540bn. Fcst was CNY 600bn).
German Aug Wholesale prices up 1.1% MoM after +0.3% (A healthy +3.1% YoY, the steepest rise since Nov 2011). Spanish Jul house transaction down solely 2.5% YoY (after -11.4% in June), but there’s a bit of seasonality in there. Still, best figure since Feb 2011. Nothing else on the data slate until this afternoon’s secondary US figures.

Slightest Risk Off start of the day: Equities down about 0.25%; Credit unchanged to a tick wider. EGB a tick tighter. Some Periphery weakness with softer 2s (+10), pulling 10s along (+5). Commodities by and large at COB levels. EUR unchanged right on the 28-handle.
Not much to do, except waiting for some smoke signs from the German Constitutional Court. That the announcement tomorrow wouldn’t be delayed because of late injunctions didn’t, in turn, stir anything.

The Netherlands sold EUR 2bn 10 YRS on tap at 1.846% (Last 1.995% end of June). Close yesterday was 1.89%, so no discount here.
Germany will issue EUR 5bn new 5 YRS 0.50% Oct 2017 tomorrow (DE0001141646). Last auctions of the previous reference yielded 0.31% in Aug and 0.52% in July. COB 0.58% (old reference +11).
Will need to check the Italian EUR 4bn 3YRS auction (+ additional EUR 2.5bn in 5 YRS and 2026s) on Thursday to assess the Draghi put after one week.
Of the 3 Spanish bonds issued last Thursday, ahead of the OMT announcement, the 2s are just a tick tighter at 2.78% at close (from auction level 2.80%), 3 YRS performed to 3.49% (from 3.68%) and 4 YRS are down to 4.33% from 4.60%. All recovered 5-10 during the afternoon. Still shaky ground.

Rather hard-line sounding Schäuble on the tickers (now back in bad cop costume) with needs for reforms stressed and reservations about the limitations of the word “unlimited”, while still pushing against a totally single ECB-supervision (on behalf of Germany’s more scattered banking landscape).

Static markets by mid-day. Bunds at 1,53% (-2), OBLs at 0,46% (-1) and BKOs 0,033% (-0,5). Spanish 2s at 2,89% (+10) and 10 YRS BONOs at 5,69% (+2). Spanish 2-10s 280bp (-8). Italian 2-10s 286bp (-9). Credit out 2-3 ticks. Equities down 0.5%. Commodities and EUR unchanged.

US trade balance figures a non-event (after revisions about unchanged at –USD 42bn).
Afternoon dragging along, waiting for US open and input. Had a (now accustomed) EUR 50 pips spike-out with no discernable trigger turn around Risk sentiment to the better. In absence of other key levels, 1.2830 is the 200d-MAV. Algo trading system fodder. Finnish-Spanish summit producing love and understanding. And a further “haven’t decided yet” from Rajoy, which seemingly intends to postpone any such decision to mid October’s post-ECOFIN (if at all). Italian 2s paring losses and allowing 10s to perform. Strong soft core performance.
Moody’s comments about cutting the US’ Aaa rating, if budget talks in 2013 turn inconclusive put a break on buoyancy, but THAT is no fresh news. Looks like a loop bad US news, good EUR; good EUR must be good news. Shaky logical foundation.
Cyprus bail-out seemingly back on the stove with Nicosia “preparing intensively”, but wants to be spared dogmatic austerity steps. Brings us back to the Conditionality question. Talking of mini-bail outs, if that exists, Slovenia off the radar screen on that subject lately.
And, while at it, Portugal confirmed the bail-out avoided the sovereign’s bankruptcy. Seeing some wiggle room after its fifth Troika review confirmed progresses, to push back 3% deficit by one year to 2014 and widening the 2012 by 0.5% to 5%. Lighter conditions for further austerity after a harsher start? Portugal’s example gives arguments to both sides: German’s “Thrift is Good!” on one hand against Italian and Spanish fears that once signed up to the medicine, the doctors might remain strict.
Had final positive tones after Samaras – Draghi meeting. Love boat, everywhere. Final Risk On, or so. And up 1%

Bunds closed at 1,54% (-1), OBLs at 0,47% (unch) and BKOs 0,043% (+0,5).
Spanish 2s closed at 2,86% (+7) and 10 YRS BONOs at 5,66% (-1). Spanish 2-10s 280bp (-8). Italian 2-10s 286bp (-9) with 2s unchanged.
Periphery again recouping some losses in the afternoon, but with still curves flattening.
Credit in line with equities in late afternoon squeeze, following the EUR.
Quiet commodity front

Tomorrow Dutch elections and Karlsruhe verdict.

Primary markets remained fairly brisk, although below yesterday’s field day, especially for peripheral issuers. Still, another 13 deals came out for EUR 6.9bn, driven by corporates, with a lot of low or non-IG ratings, and covered bonds. German Land Rheinland-Pfalz was in for EUR 1bn 5 YRS FRN at 3mE flat. Covered bonds saw ANZ for EUR 750m 5 YRS at MS +43, Austrian BAWAG for EUR 500m 7 YRS at MS +55, Belgian AXA Bank for EUR 500m 7 YRS in French OF format at MS +52 and finally Banco Sabadell for EUR 500m 2 YRS at MS +375.
Lone senior financial supply from MPS with EUR 500m 2 YRS at MS +450.
Strong corporate traffic with French Total issuing EUR 500m long 10s YRS at MS +40 (thus slightly through France), Anglo American with EUR 750m 6 YRS at MS +133, Société Foncière Lyonnaise with EUR 500m 5 YRS at MS +250 and Finnish Neste Oil for EUR 400m 7 YRS at MS +270. To round off the higher yielding segment FGA issued EUR 500m 2 YRS at MS +395 and non-IG Stora Enso raised EUR 500m long 5 YRS at MS +400.
Periphery deals, coming after yesterday’s glut of EUR 7.9bn seemed to have struggled somewhat.

Despite time flying by so fast, a thought to all 9/11 victims.

Closing levels:
10 YRS Yields: Germany 1,54% (-1); Luxembourg 1,65% (unch); Swaps 1,82% (unch); Finland 1,84% (-3); Netherlands 1,86% (-3); EU 1,95% (unch), Austria 2,06% (-7); EIB 2,21% (unch); France 2,17% (-8); EFSF 2,46% (-1); Belgium 2,57% (-10); Italy 5,14% (-9); Spain 5,66% (-1).

10 YRS Spreads: Luxembourg 11bp (+1); Swaps 28bp (+1); Finland 30bp (-2); Netherlands 32bp (-2); EU 41bp (+1); Austria 52bp (-6); EIB 67bp (+1); France 63bp (-7); EFSF 92bp (+0); Belgium 103bp (-9); Italy 360bp (-8); Spain 412bp (unch).

EUR swap curve 2-5 YRS 50bp (unch); 5-10 YRS 82bp (unch) 10-30 YRS 57bp (+1,0).
2 YRS German BKOs closed 0,043% (+0,5) and 5 YRS OBLs 0,47% (unch) / New ref Oct 2017 0.58%

Main at 127 from 129 (1,6% tighter); Financials at 208 after 213 (2,3% tighter). SovX at 190 from 193. Cross at 502 from 510.
Stoxx Futures at 2560 / +1,1% (from 2531) with S&P minis at 1436 (-0,1% from 1437, at European close).
VIX index at 15,9 after 14,2 yesterday same time.

Oil 96,9/114,9 (WTI/Brent) from 96,5/114,9 (+0,4%/0,0%). Gold at 1734 after 1732 (+0,1%). Copper at 371 from 371 (unch). CRB at EU COB 314,0 from 312,0 (+0,6%).
Baltic Dry down 0.2% to 662 from a beastly 666. Another 2.3% until hitting the Feb low at 647. Comes despite rebound in Iron Ore prices yesterday.

EUR 1,287 from 1,280

ECB deposits at EUR 331bn after EUR 327bn.

Greek bonds guesstimates: Unchanged in 2023s at 21.50% and 2042s at 18.50%. 

All levels COB 17:30 CET

This Week:
Pretty much a minor macro week. End of week brisker in the US, but anyhow subordinated to the FED decision on Thursday.
No exciting auctions. Will check the Italian EUR 4bn 3YRS auction (+ additional EUR 2.5bn in 5 YRS and 2026s) on Thursday to assess the Draghi put after one week.

EZ: Wed Jul IP fcst -3.4% after -2.1%; Fri EZ Aug CPI fcst +2.6% after +2.4%
Germany: Wed final CPI 2.2%
France: Wed final CPI +2.3%
Italy: Wed IP fcst -0.5% Mom after -1.4% / -7.6% YoY after -8.2%, Thu final CPI +3.5%, Gov Debt
Spain: Wed final CPI +2.7%; Fri Q2 House prices prior -12.6% YoY
US: Wed Imp Prices, Jul Inventories fcst +0.3% after -0.2%; Thu PPI fcst +1.7% after +0.5% YoY; Claims fcst +370k after 365k; Fri Aug CPI fcst +1.6% after +1.4%, Retail Sales fcst +0.6% after +0.8%; IP +0.2% after +0.6%, Mich Conf 74 after 74.3

Click link on title or below for today’s musical support:
Seasonally adjusted

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