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

17 January 2012 – “China in your hand” (T’Pau, 1987)

17 January 2012 –  “China in your hand” (T’Pau, 1987)

Chinese markets triggered some irrational exuberance overnight (with a 4% plus surge) on what seems a twisted ploy of “less bad than expected growth figures, but not good enough to kill hopes of government stimulus, so let’s hope to double dip growth as well as stimulus measures”. Somehow mirroring the late, more Western attitude of “when in trouble, hope that the government will prop up risk”. Seems odd. But then Chinese New Year kicks off in a week and support measures would be a nice gift to kick off the Year of the Dragon (meant to bring good fortune as well as grand scale ideas, and authority. Hissss & Roaaar!).
In probably related manner to fading growth, the Baltic Dry keeps sinking (…) some 50 ticks a day (now just above 1000k, half the 2173 2011 high in October. 1043 low in Jan 2011.). Avowedly probably inelastic and seasonal, as when there’s nothing to ship there’s nothing to ship despite cheaper prices, it does point out that there seems a lack of word-wide demand for whatever needs shipping.
Whatever… European risk sharply on right at open (+2%), after yesterday’s widely better than expected close (+.5 to 1% in equities plus lower credit indices). What blocked further short squeeze tendencies was Fitch voicing near certainty about Greece’s imminent default (S&P having done so too yesterday), as well as equities hitting chart levels (3260s in CAC, 2370s STOXX, 6280s DAX). S&P acting as stark reminder of its own to be expected trickle down of rating cuts to regions, finance and sub-sovereigns issuers.  As such, the EFSF downgrade to AA+ was highly unsurprisingly. Still, it did somehow disappoint was 10 YRS EFSF widened to Bunds already in the morning (against the general tightening tone at open). It didn’t hinder bill sales, though. It was bills’ day anyway in Europe (Belgium, EFSF, SpainGreece). All short-dated auctions doing fine. Then again, while news wire trumpet these positive outcomes “despite rating downgrades”, short term ratings remain by and large high to very high and bills are just bills, nice to put against the ECB or otherwise useful short term debt. ECB deposits breaking through the half trillion (sounds bigger) barrier at EUR 502bn. Some in the afternoon in absence of follow-up input. EUR/USD nearly point lower from 1.28 lunch high. Equities off 75-1% from highs, but still up on versus yesterday’s close (and up 3% versus Friday late afternoon). Sovereigns stalling from initial tighter levels to Bunds.

Spreads to Germany [AAA stable outlook] initially tightening, but then wobbly: Netherlands +32 (+6) [AAA unch, now neg outlook], Finland +34 (+2) [AAA unch, now neg o] , 10 YRS swaps (aka swap spread) +50 (+2 from previous day),  Austria [downgraded to AA+, with neg o] +124 (+1), France [now AA+, with neg o] +132 (+6), Belgium [AA unch, now neg o] +238 (+6) [+250 on new reference], Spain [A from AA-, with neg o] +334 (-7) and Italy [Now BBB+ from A, with neg o] +472 (-16). Portuguese govies catching back some of yesterday’s losses. Credit still trading strong in Financials.

As much as “RISK ON” seemed to be today’s special on the menu, as surprisingly few bonds were actually issued: BNZ’ covered bond exercise seemed to have been postponed on lack of traction, despite objectively fair pricing, maybe because of yet to digest fellow mates’ supply from Down Under.
So the floor was mainly left to SSAs, and even that not in huge traffic, given the initial positive market tone, with CADES and the Kingdom of Belgium printing decently size EUR 4 and 4.5bn deals in 3s and 10s and EIB joining with a EUR 750m targeted exercise. Add a EUR 1.5bn 5 YRS joint Laender deal (AAA Fitch, domestic targeted) and action was more subdued than the relief about yesterday’s market movements and today’s initial risk on mode might have led one to expect. Corporate-wise we do note this year’s first cross-over outing with Swiss chemical corporate Clariant printing 5s

If it hadn’t been for China’s surge, would we have traded the upside?

Haven’t posted chart levels for a while. We seem quite near to risk resistances here (but for sovereigns). Charts and history are obviously not repeating over and over
Main 155 – 169 – 187 – 215 // Financials 241- 270 – 307 – 365 // SovX 274- 303 – 338 – 394
Euro Stoxx 1936 – 2071 – 2154- 2221 – 2288- 2372 – 2506
2 YRS swaps 1.20% - 1.50% - 1.69% - 1.85% // 10 YRS swaps 2.19% - 2.34% - 2.57% 2.68% 2.80% - 2.89% - 3.0%
EUR 1.19 – 1.26 – 1.265 – 1.2870 – 1.30 – 1.329 – 1.335

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