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

Monday 12 March 2012

12 March 2012 – “Wuthering Heights” (Kate Bush, 1978)

Europe starting on a slightly softer footing, having taken in the Friday late evening acknowledgment of ISDA that the Greek PSI was indeed a credit event. Need to check out the diverse fall-outs of the net USD 3.6bn or so of outstanding CDS. Obviously, some protection sellers might be more exposed than others.
Other overnight / weekend news were the decades record-breaking trade deficit of China, which in turn might push the POBC to further RRR cuts and to attempt to keep the Yuan weaker (from a mid Feb record low of 6.294). Currency wars, part 27? Obviously the case for everyone complaining the Yuan was undervalued might become harder to fight. By and large, crisis come, crisis goes, the EUR at over 1.30 is probably only helpful in keeping imported commodity inflation somehow in check. Still, at nearly EUR 96 a barrel, Brent is trading at an all-time high.
Not much on Monday morning’s macro figures slate to drive markets. Equities off about half a point; Credit Indices softer. EUR down 200 pips from Friday noon’s high spirited “Who really cares about the Greek default? We all knew it was coming” 1.33 high. Bund futures only marginally higher, though. Mid morning recovery to about unchanged levels and then back to opening levels.

Greek exchange officialised at 96% (voluntary + CAC) for EUR 177.25bn. Stating, as did the Greek FinMin, that markets have understood that the swap is the “unique choice, the smart and profitable choice” might have not have been necessary, though. Don’t rub it in… EUR 130bn to be granted by the Eurogroup. The IMF package pitched over the weekend might be on the low side. And weekend eco press all certain that we’ll see a third sequel to the Greek bail-out.

Not much official buzz today, be it on Greece or other subjects, but tension is in the air on subjects ranging from French presidential candidate pitches, the Spain deficit target story or Germany’s view about deficit management (of others). Greece was certainly a good Eurogroup cement, but it would be dangerous to assume that the subject is behind and to start bickering. Someone will come and check the height of the firewalls at some stage and any sign of European disunity could trigger double-guessing and double-checking the resolve to stand as one. Anyway, Wed is Eurogroup day.

Had some sovereign supply with Luxembourg issuing a EUR 1bn 10 YRS deal. Price level by and large in line with German GG KfW, as were already past Luxembourg transaction. Obviously a non-recurrent issuer, this pricing puts it in the Core EZ+ Finland & Netherland vicinity (rather than Core EZ- France and Austria).
German 6m bill auction eventually paying (some) yield at 0.05%. B/C 1.6, EUR 4bn issued with EUR 507m retained.

New Issues starting the week with a rather nicely mixed platter ranging from SSA (EUR 1bn Lux), (Nordic) senior financials (EUR 500m Pohjola 5 YRS @118) and (Spanish) covered bonds (EUR ) next to corporate names Heineken and Luxxotica. Heineken’s nearly spontaneous EUR 8bn book showing once more the attraction of good household names with down to earth goods, which investors can identify with. Sort off…

ECB deposits now under the EUR 800bn mark at EUR 798bn. The ECB bought EUR 27m sovereign last week, with EUR 1.5bn maturing. EUR 218bn to sterilized via 7 days deposits. Already deleveraging???
VIX crashing to 15.5 from 16.8 at European close Fri, levels last seen in early Summer 2011.
Commodities by and large about unchanged to a bit softer. Friday morning levels. Brent / WTI / Gold 124.8 / 105.9 / 1697.
Baltic Dry once more up 1.6% to 837 from 824. Still has catch-up room.
10 YRS spreads: Swaps +46 (+2), Finland +44 (unch), Luxembourg +49 (), Netherlands +52 (+2), Austria +111 (+6), France +114 (+4), EFSF +133 (+1), Belgium +165 (+5), Italy +314 (+11), Spain+328 (+9).
Yield-wise: Germany 1.75% (-4 bp), Finland 2.19% (-3 bp), Swaps 2.23% (-2 bp), Luxemburg 2.26% (), Netherlands 2.27% (-2 bp), Austria 2.86% (+2 bp), France 2.90% (+1 bp), EFSF 3.09% (-2 bp), Belgium 3.40% (+1 bp), Italy 4.89% (+7bp), Spain 5.03% (+5bp)
Germany well bid, Core EZ+ bid, Core EZ- less bid, periphery wider. Spain theme getting tense again. Yields back above 5%.

Mildly tensed day, again, but in low volatility environment. The levels reached lately are to0 high to press further, int the void without a real positive trigger. On the other hand, market participants seem to close their eyes and wish real hard there’s no trigger to test the downside either. At least, as long as the world’s central banks remain next to the liquidity tap. Then again, Core EZ bonds well squeezed, so it’s not like people are relaxed. They’re not.

Tuesday: DE ZEW survey (fcst 41.5 vs. 40.3), FR CPI (0.5% vs. -0.4%), IT CPI (0.2% vs. 0.2%), SP CPI (0.1% vs. -1.7%).
Might get people checking out the BuBa 2011 report and listen to Weidmann thereafter. Yes, that Target2 story… Eurogroup in the morning.
Bill sales in Belgium, Italy. Dutch 3 YRS (at 0.635%, not really LTRO fodder...)

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