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

Saturday 25 February 2012

10 January 2012 – “Jump around” (House of Pain, 1992)

10 January 2012 – “Jump around” (House of Pain, 1992)

Strong start with 1% equity uptick right at open on positive Asian close and fair US close, as Alcoa opened the quarterly earnings ball (with an expected loss, but with a rather positive, even upbeat view of 2012). “Risk on” day: Equities strengthened to 2%+ by late European morning, getting credit to move tighter, with financials finally taking a breather from the daily beating. Financial credit tighter by 16 points (5,4%). EUR getting the lead from here and breaking back through 1.28, although not holding. Markets taking positive input from Fitch confirming France would probably not be downgraded this year (while Italy could, but this would just put them in line with other agencies’ already lower assessments). Equities extended their drive into the +3% range, but then peaked there. Most of the lost ground since last Tuesday’s 2012 high is now retraced. By and large, the Euro Stoxx simply rebounded from the lows of December 30th and back near its 6-month average. Jump around…(but the annoyingly nervous hip-hop version with the squeals, not Van Halen’s really optimistic “Jump”).
Next to yesterday’s negative yield bill auction in Germany, we’re reminded on a daily basis by the record amounts deposited at the ECB (EUR 482bn) that credit risk perception seems more biased by some than by others. Some deficit revisions (lower for France, probably higher for Portugal and certainly for Greece). Greek 2 years now trading 20% of par, in line with the rest of the curve (PSI deal is “close”, as repeated today). Hungary caving in to EU pressure (good for HUF and Austria).

Spreads to German 10 YRS again tighter in “risk on” mode: Netherlands +38, Finland +45, Austria +134 (-10 after successful, albeit smaller auction,) France +137 (-10), Belgium +256 (-16), Spain +361 (-11) and Italy +525 (-3).  Italian 10s at 7.10%, having tested wider in the morning and near the November double-top at 7.25%. 10 YRS EUR swaps remain very near to the 2.35% double-support (Sep & Nov 2010). The equity rebound has thus mainly hit German BUNDs.

Supply-wise, another strong day with further covered bond issuance, diverse in provenance and maturity, but it was mainly the SSA front that took the relay with strong AAA offerings across the curve (FMS closing 3s, NWB finally closing, another double serving of German Länder, a new EIB 3 YRS EARN announced for tomorrow and a KfW 10 YRS deal) and corporates coming back into gear. Senior financials active, as if last quarter’s break never happened, albeit rather for tried and trusted names (preferably not EZ, as it stands.UK, Nordics, Swiss preferred). It’s a bit of a flood here. Corporates provided an impressive EUR 4bn serving in 4 tranches. Car makers really are en force to start the year (Afraid of funding woes? Or having a less upbeat view of things to come?).

Every time someone says the pipeline is empty now, another deal is announced. Still need to pass those Spanish and Italian auctions on Thu and Fri.

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