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

31 January 2012 – “ Don’t Worry, Be Happy ” (Bobby McFerrin, 1988)

31 January 2012 – “ Don’t Worry, Be Happy ” (Bobby McFerrin, 1988)

Brisk start to the upside to close the month. Given positive auto-suggestion out of Brussels (“Towards growth-friendly consolidation and job-friendly growth”, statement title of yesterday) on the fiscal compact, the ESM (sometimes in time) andGreece (sometimes in time, but soon, yes, very soon), a stronger NY close than its open and about ok Asian session. EUR still driven to the upside, mainly on short covering, and dragging risk appetite along. Initial levels correcting most risk assets initially to yesterday’s highs. Economic data showing further inner EZ divergences with German unemployment at 20-year lows with 6.7% versus EZ figures at 10.4%, their highest since 1998. French and German retail sales / consumer spending lower in December. US home prices bad – as usual. Chicago PMI into the pan and lower then expected, actually just a tick better than in the post-summer gloom of 2011. Seriously think that someone should look into the correlation wit the Baltic Dry.US consumer confidence lower than forecasted, too. That iPad 3 will be the only luxury in 2012…
Still markets quite resilient to bad spirit, all the more as no news popped up on Greece, outside rather uncertain to negative Austrian, Dutch and Swedish CB and FinMin comments either on “wasted resources” or the need to take responsibility. Oh, on Portugal, things are obviously very different…

Yesterday’s paltry figures of ECB buying (EUR 63m on the week) are reminiscent of its lack of enthusiasm shown on Italian debt before the Berlusconi eviction. Caught in the limelight of calls for PSI involvement, as well as witnessing the daily correction of PGBs, it looks like Frankfurt’s back-stop trading desk is taking the foot of the pedal, while waiting for clarification or firmer commitments of the involved parties. Then again, last week was a huge run on Italian and Spanish debt, so no need to pay up either. For once, markets were doing this on their own, so why bother?

No EGB supply outside some EUR 2.6bn in Belgian bills (good B/C, albeit with higher yields than before - although with 3m @0.429% and 6m @0.506% hardly worrying). For better or worse, limited price action on Portugal with the longer end performing, albeit slightly to the detriment of the shorter end: all about 100 bp better., but curve now flat to inverted 20% down to 16%.

ECB deposits sown EUR10bn to EUR 479bn. New guessing game for the next LTRO size with ranges from “not much more” (EUR 300bn) to “Gimme gimme gimme” (another EUR 1,000bn). Please cast your vote by 29 February.
Baltic Dry just down 3% to 680 (…). Just another 2.5% until the 663 low of December 2008. Before that this level was only briefly broken in summer of 1986. Need to have China very rapidly export some goods to the world to turn things around… Maybe once the iPad 3 starts shipping?
Watch that sneaky EUR flirting with SNB’s 1.20 limit.

Primary markets very reactive to the Risk On start of the day with covereds, Finland 15 YRS and 2 more corporates, as well as some Italian senior financials, albeit on the short end. Seeing non-IG Ford in the US domestic market, as well as petro giant Petrobras plus agencies and Romania.

German Bunds initially weaker and then crawling back steadily throughout the day to unchanged. 10 YRS Bunds unchanged @ 1.79% despite the morning sell-off, flirting with near-historic levels at 1.76% from mid January and November last year.  All-time low 1.675% in September 2011. Difficult to prepare auctions these days, given the daily volatility, but Germany is issuing up to EUR 5bn 10 YRS tomorrow, so this might explain some sluggishness there.

Spread performance to Germany uneven, core a tick softer, periphery a tick better, reverting some yesterday’s correction: Netherlands +36 (+2), Finland +47 (+4), 10 YRS swaps +47 (-2), France +135 (+2), Austria +138 (+-1), Belgium +187 (-1), Spain+316 (-5) and Italy +415 (-12). Italy back through 6% @ 5.94% in 10s, Spain unchanged just below 5% with a Thursday auction on the plate.

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