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

14 February 2012 – “ I Don't Want to Talk About It” (Rod Stewart, 1975)

14 February 2012 – “ I Don't Want to Talk About It” (Rod Stewart, 1975)

US close, as usual lately better than open, once Europe home. Asia balanced, as BOJ unexpectedly delivered a JPY 10trn QE Valentine’s gift to the market, joining fellow central bankers in the world in propping up worldwide liquidity.  Bah… Had forgotten potential tail risk of rating agencies’ action, but it doesn’t seem people care much these days. As such Moody’s downgrade of half a dozen sovereigns didn’t have much impact outside some pressure on EUR/USD. Slightly softer open in Europe, which was then helped by much better than expect German ZEW and a decent Italian auction. Currencies, equities, credit all unchanged to Monday close by noon.  Given all this, markets decided not to delve on bad news.
US retails sales disappointing (less iPhones?), finally pushing risk back into slightly negative territory. But nothing wild. Chinese comments of possibly supporting Europe via the EFSF have left markets totally cold this time (This would have been good for a 2% squeeze in past months, but has been heard too often over the last months). Credit, especially Financials, underperforming. Financials back to end of Jan levels, nearly 40 wider from the 190 low of 08 Feb.

Greek Q4/2011 GDP -7% (after -8%, -7.3% and -5% for the summer), so 2011 deficit is -6.8% Ah… Bad. Might need to go back to the drawing board to recalculate. No way to have Greece reach 120% Debt/GDP any time soon. Need a different approach. “Voluntary” PSI success rate seems to be getting seriously doubted – now by EZ central banks, as press reports. And even if successful, will it really change the final outcome? As such, the March 2012 quoted a 40% of par might seem slightly on the rich side.
Btw, we had the ECB confirm last week’s hint that it could forsake possible gains (of its shareholders) on its Greek debt holdings, if passing along (for instance to the EFSF). [See Thursday’s comment: Smart [Draghi closing] move on its Greek holdings: the ECB can’t lose a cent on them, but if it gives up profit by selling them to the EFSF (i.e. the governments), than that’s permissible. Nice way to pitch the responsibility of the transfer union back to the member states. Just need to find someone now to willingly pick up the tab. [Still] Don’t think the idea would pass the Bundestag floor door.]
Anyhow, getting again some AAA-government barrage on anything in excess of the EUR 130bn agreed package forGreece. Likewise, we get more and more official talk indicating containment of contagion [in case of a Greek default]. Of course, everyone stresses that this is not the outcome anyone is looking for. Tight game.
Talking of Games: Italy won’t be able to support Rome’s 2020 Olympic Games bid. This seems sensible given the horrendous costs of such events. Greece flooded the Schuldschein market to refinance those 2004 games, estimated at some EUR 10bn. London 2012 is expected to cost GBP 7.25bn (EUR 8.6bn).

Moody’s move was widely seen as adjustment and “non-event”. Good govie supply with EUR 6bn Italian bonds in 2s as well as some 4s and 5s. Good size, lower yields than last month, okay-ish B/C ratios. Spain selling 12m bills at 1.90%, below 2%, taking it back to Oct 2010 levels. Even Greece raised EUR 1.3bn in 3m bills at more or less unchanged levels (4.61% vs 4.64%) and B/C. This seems rather expensive compared to the March 2012 GGB at 1572% (on a 40% price). But that’s not new… EUR 4bn Dutch 5 YRS @1.35%.

Primary markets still ok, if not really vibrant. Good enough to get some household names into the street (Daimler, ING, KfW, some SSA taps). Note ING’s 10 YRS senior trade.

ECB deposits ticking up further adding EUR 12bn to EUR 510bn. EUR 528bn on 17 Jan remains the number to beat, knowing that this was the end of the reserve requirement period. Could have a similar effect today, which is closes the current maintenance period.
VIX down again from Friday’s 20.8 to 19.04 on Monday.
Baltic Dry rising 0.7% to 734, but rise is subdued compared to last sessions’ rebounds. Now up 13.5 from 647 low on 03 Feb.

Spreads to Germany again a tad wider, especially on Core EZ names (Moody action on the periphery was seen as just matter of fact): 10 YRS swaps +40 (-1), Finland +45 (+2), Netherlands +49 (+2), Austria +110 (+6) France +113 (+5), Belgium +156 (-2), Spain+335 (+4) and Italy +364 (-2). 10s DBR 1.91%.

Still in limbo. Markets waiting for something to happen, don’t want to talk about unpleasant things.

On tomorrow’s plate: Portuguese bills. EZ GDP (fcst 0.7% YoY), as well as FR, IT, GE components; US IP and capacity. Eurogroup meeting and (maybe) decisions on Greece. Ah, Greece… Ah, growth… Better not talk about it.

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