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

Sunday, 16 December 2012

Shuffle Rewind 10-14 Dec " Lazy Sunday Afternoon " (Small Faces, 1968)

Shuffle Rewind 10-14 Dec " Lazy Sunday Afternoon " (Small Faces, 1968)

This week in review (compared to Fri 07 Dec COB):
Click on day for related post, on title for song.

As we ended November, we started December last week. Quietly. If it hadn’t been for some EUR volatility, a rather botched Spanish auction, Apple getting peeled and Bunga Bunga politics that shook Italy, we would probably have trailed mostly sideways, trying to sleepwalk into the year-end. And still, if you wanted to sleep tight, you needed to remain both long Risk AND long bonds.
"Only When I Sleep" (Bunds1,30% -8; Spain 5,51% +21; Stoxx 2599 +0,7%; EUR 1,293 -80). That week ended on Friday 07 Dec with musings about the need to find other ways to kill time until Year End. Morning highs, lunch time lows and then trailing the US felt unfulfilling. EGBs remained on the stronger side with augurs seeing a weakening Germany and calls for lower rates putting the EUR under pressure. Ok, Germans: “Now work! Somebody has to pay the bills!” seemed to be the right call to increase "Bruttosozialprodukt" (Bunds 1,3% +1; Spain 5,45% -1; Stoxx 2597 -0,3%; EUR 1,295 -20). NFP were strong, hitting USTs, but not enough to persuade US equities to do more than trade sideways.

Monday 07 Dec revealed that the Italian crisis seemed to be a real one, as Monti threw in the towel over the weekend. Still: Surprisingly stable Risk. BTPs were shot down in style. So, Italy? Down. Chinese data? Was partially weak. Japan? Confirmed in recession. French data? Weak. German data? Strong. At least them… Wow! With that it would be better to have Friday’s PMI numbers look really good (Which eventually wasn’t really the case…). So once more, analysts were having to reinvent themselves as political experts to glare into a smoky crystal ball… Italian contagion remained contained, though. Uh…Uh…! "Uh...Uh - Bingo Bongo " (Bunds 1,30% unch; Spain 5,54% +9; Stoxx 2598 +0,0%; EUR 1,293 -20). Tuesday showed markets recovering quite nicely from the Italian shock. Add some better outlook figures and we were all friends again. The Spanish bill auction was less punishing than could have been feared. The US were opening stronger. Everything else was all good again. Greek bonds went stellar. "(Ain't That) Good News" (Bunds 1,32% +2; Spain 5,45% -9; Stoxx 2623 +1,0%; EUR 1,299 +60). Wednesday was simply boring and a good day to spend some quality time off the screens, while markets were digesting Italy further (Bunds 1,34% +2; Spain 5,34% -11; Stoxx 2628 +0,2%; EUR 1,304 +50). The FED announced QE4, which everybody had expected the day QE3 was announced anyway. So not that a kicker. That extended into Thursday with the Periphery still recovering some more, although slightly less as auctions in Italy and Spain weighted a little. Equities and Risk oblivious to that anyway and synching with the US until the European close. It is getting difficult to find something crisp out there with the reduced news flow and volatility. Excitement solely stemming from the US on FC developments, as Greece, Spain and Italy are seemingly off the table and that the FED has moved to QE4. "When It's Sleepy Time Down South" (Bunds 1,35% +1; Spain 5,38% +4; Stoxx 2622 -0,2%; EUR 1,308 +40). So eventually we closed yet another Friday with an utterly boring session, worsened by year end inactivity… PMI figures, which were actually needed on the more positive side to justify the latest levels in Risk were just so so in Europe. But, who cares? Periphery recovering further with Spain actually the best performer on the week (outside the bailed-out gang). US stuck despite better figures. "Stuck in the Middle with You" (Bunds 1,35% +0; Spain 5,37% -1; Stoxx 2628 +0,2%; EUR 1,314 +60). US equities barely changed on the week. A shade red, to be exact.

Bingo Bongo, Good News hailing, Sleepily digesting in the South to end Stuck… What an uninspiring week… Felt slow as a Sunday Afternoon– for 5 days in a row… The only thing that wasn’t lazy and laid back was the EUR.

While last week had been one where you needed to run Bunds (8 bp tighter to end at 1.30%), and especially Soft Core EGBs, all closing by and large on historic lows, despite Credit tightening in by yet another 3.5% and equities squeezing out yet another 0.7% in gains, this week saw that bid weakening gradually as the Periphery recovered. Still, one could barely call this a “correction” with 5bp added to end at 1.35% (Mon unchanged, Tue +2, Wednesday +2, Thursday +1 and Friday unchanged). And that is with Bunds being among the worst performers in European bonds… So not much to report. End of year… We remain in the same old 1.13% - 2.07% range, with retracements levels at 1.35%, 1.49% and 1.60% on the upside.
UST wider by 8bp in an auction-laden week at 1.70%.
Schätze gave back 4 bp after last week’s 9bp gain, deep into negative territory, and ended at -0,043% (+4) with 5 YRS OBLs at 0,33% (+4).
NB: End of July closing lows for 2 YRS were -0.095%, 5 YRS 0.24% and 10 YRS further away at 1.17%.
Not much to say about the rest of the EGB curve. Most sovereigns sluggishly tightened in just a little on Germany’s (limited) widening, especially during the re-normalization at the end of the week. Soft Core subject to accordion movements with the Periphery wagging them all, to a certain extent.

The Bunga thing last week took some time to digest, although last week’s sleepy environment had the whole thing watered down (with Italy ending 4 wider and Spain 15 against Bunds tightening 8? BRING 10 YRS to 4.53% / 323 to Bunds, respectively 5.45% / 415 to Bunds). Monday was bunga-ed some more after Monti threw the towel over the weekend with Italy widening sharply by 28, dragging Spain 9 wider as well, as players realized it wasn’t just a blimp on the Italian political landscape. 2 YRS fared even worse, widening by 34 (and 12 for Spain). But by Tuesday the view became more sanguine with hopes of Monti positioning himself on some sort of centre / centrist platform and both Italian and Spanish curves tightened back some 10bp, followed by some more normalization on Wednesday (Italian 2s -14, back through 2%, and 10s -8 with Spanish 2s -14 and 10s -8), as the Italian 1 YR bill sales went through smoothly. Thursday a bit wobbly on auction-supply both in Italy as well as Spain (-1 in Italy, +4 in Spain) with the end of the week showing a lenient -3 and -1.
Italy ending the week at 4,60% (+7) / 325 (+2) to Bunds and Spain at 5,37% (-8) / 402 (-13) to Bunds, eventually the best performing bonds (outside the bailed-out countries, which went ripping, led by Greece). Italian 2s at 1.87% (+3 on the week) and Spanish one at 2.83% (-10).
So, things about digested.

If we felt that the Greek buy-back prices were generous, it didn’t keep the Greek bonds from seriously overshooting them already before the (extended by 2 days) cut-off date and even more thereafter. Greek bonds closing at their (initial) highs on the closing of the buy-back with 2023s at 43.50 (13.28%) and 2042s at 34.0 (10.90) to then end the week for the 2023s at 45.0 (12.83%) and 2042s at 34.0 (10.90%), having closed last Friday at 40.75 (14.15%) and at 31.0 (11.71%). As a reminder, buy-back price proposals were 38.1-40.1 & 30.2-32.2.
The Greece buy-back went through for EUR 31.9bn and the ensuing rally is certainly good for the OSI end of year mark-to-market. Details here.

Swaps again totally in line with EGBs, after closing last week at historic lows (up to 11 YRS). 2-10s barely wider at 127 (+1), with 2-5s at 45 (+1) and 5-10s unchanged at 82. 10-30 YRS, which steepening was surprising us over the last weeks, finally flattened back to 66 from  70. As for the last weeks (+7 to 70 and before that +2 to 63), I would expect X-longs to tighten in an increased low-inflation cum Risk On scenario.
2 YRS 0.345% (+3.5) 5 YRS 0.795% (+4.5) 10 YRS 1.620% (+4) 30 YRS 2.280% (unch).

As last week, Credit indices still seem to attempt taking out new lows for the year (Main 112 in March, ; Financials hitting 146 past the Oct 153 point; Cross low 462 mid Sep, 468 today). Some light outperformance of equities, especially for the Crossover.
Highs were respectively 208 & 184 in Nov 2011 and then May 2012 in the Main, 355 & 309 for Financials and 842 & 753 for the Crossover. So we’ve come some way here, too.
Main down to 116 (-2,5% tighter); Financials at 152 after 153; Cross at 463 from 480 (-3,5% tighter).

European equities finally, tick by tick by tick by tick, managing to take out new 2012 highs (2638 on Thursday for the EStoxx), but mostly in limited volatility and running a bit out of steam, paced as well by the US. Monday ended unchanged to the tick, Tue saw eventually a 1% sprint, followed by additional +0.2% on Wed and the slightest of correction on Thu with -0.2% and ending Friday  +0.2%, nonetheless up +1.2% on the week.
European 50 & 100d averages: EStoxx 2527/2497, DAX 7306/7201, CAC 3480/3462, MIB 15591/15372, IBEX 7824/7663.
US 50, 100 & 200d averages: INDU 13126/13169/13003, S&P 1416/1415/1387, NASDAQ 2997/3027/2989 with AAPL at 589/620/602.

The only thing that wasn’t lazy this week, again. Last week was pogo time in EUR/USD (+50 +20 -10 -100 -20) after having added 310 pips in the prior weeks and been kicked in the chin by Bunga Square. Eventually things mellowed out here, too, initially, but Risk, for choice, is back in the European camp: Mon -20 Tue +60 Wed +50 Thu +40 Fri +60. Flirting with that 1.315 just around Friday close.
Resistance 1.315-1.317 area.
EUR: 50d 1.291, 100d 1.270 & 200d 1.279.
Fibo retracement (of May 2011 1.494 & Jul 2012 1.204 down-leg) at 1.273& 1.315, then 1.349 (50%).Jul 2012 to Sep rebound levels: 1.231 – 1.247 – 1.261 – 1.274 – 1.291 -1.317 .

Not much to say about Commodities. Brent up 2% against WTI’s +0.5% and Gold weakish and held below the 1700-mark (-0.3%).
Baltic Dry crashed, though, showing some fundamental lack of transportation needs. To be watched. The Chinese New Year starting only on 10 Feb 2013, that excuse won’t make it.

Seriously nearing the end of the year in New Issues with a week that only yielded slightly over EUR 4bn in 7 deals (versus EUR 14bn last week and EUR 27bn during the last November week), of which 3 EUR 1bn benchmarks (Carrefour, AT&T, Telecom Italia), although one would note that the remaining deals were more on the venturous side with non-IG Nexans, BoI’s Tier 2 deal or unrated forest-manager Tornator.

Outlook: Same on the menu, just the same: Broadly sideways, unless a shoe drops. If the sun shines, test the upside. Fiscal Cliff uncertainty remains on the menu. Periphery woes seemingly digested. Will once and for all drift into holidays catatonia.

On the week (compared to Fri 07 Dec COB):
10 YRS Yields: Germany 1,35% (+5); Luxembourg 1,42% (+4); Netherlands 1,55% (+3); Finland 1,57% (+2); EU 1,61% (+3); Swaps 1,62% (+4); Austria 1,73% (+4); EIB 1,77% (+2); EFSF 1,87% (+1); France 1,98% (+3); Belgium 2,11% (+2); Italy 4,60% (+7); Spain 5,37% (-8).

10 YRS Spreads: Luxembourg 7bp (-1); Netherlands 20bp (-2); Finland 22bp (-3); EU 26bp (-2); Swaps 27bp (-1); Austria 38bp (-1); EIB 42bp (-3); EFSF 52bp (-4); France 63bp (-2); Belgium 76bp (-3); Italy 325bp (+2); Spain 402bp (-13).

EUR swap curve 2-5 YRS 45bp (+1,0); 5-10 YRS 82bp (+0,0) 10-30 YRS 66bp (-4,0).
2 YRS German BKOs closed -0,043% (+4) and 5 YRS OBLs 0,33% (+4), on the week. with UST at 1,70% (+8). Swiss 2 YRS back up to -0.240 from last week’s -0.295%, in line with Schätze.

Main at 116 from 119 (-2,5% tighter); Financials at 152 after 153 (-0,7% tighter); Cross at 463 from 480 (-3,5% tighter).
Stoxx Futures at 2628 / +1,2% from 2597 with S&P minis at 1411 / -0,1% from 1413, at European COB last week.
VIX index at 16,7 after 16,5 last week.

Oil 86,6/109,1 (WTI/Brent) from 86,2/107,0 (+0,5%/+2,0%). Gold at 1696 after 1701 (-0,3%). Copper at 366 from 365 (+0,3%) . CRB closes 293,0 from 296,0 (-1,0%).
A real beating for the Baltic Dry after last week’s 11% slide. Things just got worst by the day, peaking with an 8% plunge on Wednesday. BDIY sunk yet again on Friday to end the week at 784, down nearly 19% this week and over 27% during the last fortnight.
The latest dip from the post-Summer high of 1109 in Oct had been halted at 916, before that we slipped from 1162 in July to 661 mid-September. Upcoming Chinese New Year (10 Feb 2013)…

EUR 1,314 after 1,295 last Friday

All levels Friday COB 17:30 CET

Fast-forward Macro and Events:
Preciously few things…
Dragging into Year End, unless next Friday proves the Mayan right.
US housing back into focus next week. Big Friday US data dump.
Pretty empty government supply slate with Spanish and Greek bills on Tuesday

EC: Mon 17 Trade Balance; Wed 19 Construction; Thu 20 Cons Confidence
GE: Wed 19 IFO fcst 102.3 after 101.4; Thu 20 PPI; Fr 21 Cons Confidence
FR: Fri 21 BIZ Confidence
Italy: Wed 19 Industrial Orders and Sales; Thu 20 Retail Sales; Fri 21 Consumer Conf
Spain: Thu 20 Housing Permits, Fri 21 PPI
US: Mon 17 Empire Manu fcst 0 after -5.22; Tue 18 NAHB Housing; Wed 19 Housing Starts fcst 873k after 894k, Permits fcst 870k after 868k; Thu 20 Existing Homes Sales fcst 4.85m after 4.79m;Claims and yet another Q3 GDP revision; Big Friday with Chicago FED, Pers Income & Spending, Durable Goods;, Michigan Conf.

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