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


Wednesday, 14 March 2012

14 March 2012 – “Lonely At The Top” (Randy Newman, 1970)


Strong risk on opening, continuing yesterday’s rally and a very strong US close with the Dow finally hurdling the 13k mark for good and a (mainly) positive Asian session, although Chinese indices traded sharply lower. Mastering a soft landing in China remains juggling growth issues, mostly international-related, as well as commodities and inflation while balancing the bubbly property market. At it seems the choice looks like keeping the latter in check and experience with other steering means than simply re-opening the liquidity tap. Odd decorrelation of the other Asian bourses, taking their lead off European and US closes.
Further support coming from the FED (Yes, we’ll provide cheap cash for another 2 years). US mortgages lower, import prices lower than forecasted, deficit wider.
Uneven to slightly negative US open dampening European equities, but credit still pushy with Financials back through the 200 mark and Main revisiting early Feb 2012 lows / early Aug 2011 levels. 125 area a bit of chart resistance to credit strength, as would be the 190 mark for Financials.
Doesn’t look like markets care much about the EUR these days, at least not as stress indicator anymore.

It is duly noted that the new Italian 3 YRS auction went well (EUR 5bn at 2.76%, against 3.41% a month ago) and that levels have come down compared to last time and now back in  Q4/2010 area. Bid to cover around 1.5 does point out to some good primary dealer support and is not yet huge, though. Still, another stabilizing market. Bene.
Had the Italian Treasury pointing out it expected 10 YRS spreads to Germany coming down another 100 bp and that it was looking to lengthen its average maturity from currently 6.8 years. Si, this would make sense. Borrowing to fall to EUR 440bn from initially planned EUR 450bn. Noted.
Talking of long maturities: UK milling issuing ultra ultra longs (100 YRS or perpetuals). Sure. With UKT 2060 at 3.38% this is tempting to lengthen duration at low cost. Might be a cheap can to kick down the road for a long long time. Should rather be of good quality to withstand the lengthy process, though.

Had missed corporate new issues yesterday. Came in force today with books reaching billions within 2 hours and taking pricings lower (Roche EUR 1bn long 6s @18[Uufff!], Telstra EUR 1bn long 10s @, Saint Gobain EUR 750m 10 YRS @140) Belgium taking SSA centre stage with a new EUR 4bn 20 YRS deal. Here again NIP rather restricted.

ECB deposits jumping EUR 816bn to close the reserve maintenance period. New one starting today, ending 10 Apr, should see amounts dropping substantially.
VIX levels stabilizing below 15. New normal or market belief that central banks united (CBU) will forever provide funds and combat slippage?
Oil reluctant to join the party and about stable at 106 / 126 for WTI and Brent. Gold less shiny and down 3% to 1645 level.
Baltic Dry again up 1.5% to 855. Not that this one is wildly and widely tradable, but up 32% from its decades’ low at 647 early Feb looks like a nice rally. Then again it came crashing down from an intermediate 1930 high mid Dec and a post-Lehman as well as past 2-year average of about 1600-1700. So that sharp correction from December on cannot be seen as simply innocuous and seasonal.

10 YRS yields: Germany 1.95% (+14 bp), Finland 2.36% (+11 bp), Swaps 2.37% (+10 bp), Luxemburg 2.40% (+9), Netherlands 2.43% (+11 bp), Austria 2.87% (+2 bp), France 2.92% (+3 bp), EFSF 3.20% (+9 bp), Belgium 3.38% (+2 bp), Italy 4.84% (-5 bp), Spain 5.15% (+2 bp)
Spreads: Swaps +39 (-7), Finland +41 (-3), Luxembourg +44 (-5), Netherlands +48 (-2), Austria +92 (-11), France +97 (-11), EFSF +125 (-5), Belgium +143 (-12), Italy +289 (-18), Spain+320 (-11).
Germany + Core EZ+ again taking a mega beating (+14 bp, after +6 yesterday) on end of crisis behaviour with Bunds. Austria and France coming through the +100 mark to Bunds and BTPs through 300.

It does feel lonely at the top, doesn’t it? Of course, there’s relief and there’s liquidity, but, hmmmm, the air seems thin up here.

Thursday: Nothing major in Europe. Maybe Italian debt, Spanish housing prices or Greek unemployment could reveal the state of things. EU new cars. US PPI (+2.9 ex fcst) , jobless (+357 fcst), Philly Fed (+12 fcst)
Auctions in France and Spain. Spain touchy these days, as tightening has run out of steam lately.

Click link on title or below for today’s musical support:


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