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

24 February 2012 – “Frozen” (Madonna, 1998)

All levels 12:30 CET

Yawn… Friday morning and markets behave like usual. Low vol start, pretty much where we closed. Tick better for choice, as the oil story is seen as proof that there’s life out there – and not yet as there’s a wall to be hit soon. Most markets slightly up, although only China more than 1%. View it as catatonic, if you like action; Zen, if you feel like markets are balanced. Weren’t it for the EUR and commodities, you’d feel like slapping your screens the old way to see if they’re not frozen.
German Q4 figures pretty much as expected, although the drop in trade had been forecasted worse. French consumer a tick cheerier, but as chronically depressed that whole index ought to be rebased anyway. Italian retail sales sharply lower, matching early 2009 levels.
Equities initially moderately positive, with credit much stronger by mid morning and financials taking the lead. Markets then trying to dash up 1% in Friday non-gloom squeeze mood, before knowing better.

Sovereign supply restricted to Italian bills, as well as zero coupons and ILBs. All well, as all periphery sales lately, with lower yield and slightly higher BC.

LTRO size competition: An astute reader pointed out an embarrassing big finger on my numbered example, as indeed EUR 300bn +25% were 375, not 400 (Ouch!). To cling to my smart end result, and as number massage has become so commonplace lately, I’ll simply round that up to EUR 400 (that’s a mere 6.7%). Final number unchanged.
Although, after second thoughts, I’ll make that an upper limit, given yesterday’s caveats on collateral and leverage. So that error finally comes in handy and I’ll make it the lower range. My new take: EUR 464 to 489bn, EUR 477bn final number.

New issues taking Friday off, with solely UNEDIC roaming the EUR market (for the second time this week) with a EUR 750m 7 YRS block trade.

ECB deposits add EUR 10bn to EUR 476bn.
VIX crashing to 16.8 at US close, lowest since mid Jul 2011.
Brent about stable at 123.5, but WTI jumped up $2 past 108. WTI within $ 4of the 2011 high. Brent still within one EUR of the July 2008 EUR price all-time high.
Gold once more trading a new 2012 high at 1787 in Asian hours before trailing back to 1779. Still, 1.800 in sight.

Spreads to Germany about static. 10 YRS swaps +42 (0), Finland +44 (), Netherlands +47 (), Austria +109 (-2)France +116 (-1), EFSF +132 (-1), Belgium +175 (-2), Spain+313 (-3) and Italy +355 (-9). DBR 2022 1.89%, up 1bp.

On the week:
-          Another static week. Limited volatility and excitement. We note Spain doing fine and definitively better in weeks without SPGB auctions. Next week thus be a different story, especially given late tight levels achieved.
-          10 YRS spreads: 10 YRS swaps +42 (), Finland +44 (-2), Netherlands +47 (-2), Austria +109 (-7), France+116 (-1), Belgium +175 (+9), Spain+313 (-17) and Italy +355 (-7). Belgium odd man out.
-          Yield-wise: Germany 1.89% (-4 bp), Swaps 2.31% (-3 bp), Finland 2.33% (-5 bp), Netherlands 2.37% (-7 bp),Austria 2.98% (-11 bp), France 3.05% (-5 bp), Belgium 3.65% (+6bp), Spain 5.03% (-20), Italy 5.45% (-11 bp).
-          European equities +0.0% (from 2522) and the S&P +0.2% (from 1358).
-          EUR 1.341 from 1.315 (+2.0%)
-          Credit 130 (from 137 or +5.1%), Financials 214 (from 224 or +4.4%) and Sovereigns 344 (from 340 or -1.2%). Knowing that most of the move comes from this morning. Outperforming equities.
-          Baltic Dry 706 from 717 (falling). VIX 16.8 from 18.2 (sleeping). Brent from 123.5 from 119.5 (+3.3%). Hmmm..


Next week: LTRO and sovereign auction supply. Tons of US figures. Certainly some Greece jitters. Need to track Middle-East tensions.

Sorry for not being able to capture the afternoon session and hoping that markets won’t move in a manner that makes this report totally useless.
Will be off during the next two weeks. Next wrap on Friday 09 Mar.

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