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

Friday 16 March 2012

16 March 2012 – “Easy” (Commodores, 1977)

It' striking that among the 15 most read BBG news a third was related to mugging the Muppets or other bankers' conscience wringing about pay and merit, sports or, amazingly, the drinking behaviour of flies with a bad amorous karma. Note another third was devoted to China buying USTs, staging its own version of political Ides of March or the wrangling between government and local officials about stat data. Otherwise, not much to write home about. Maybe it’s the fitting mood for these first sunny days of Spring that makes people careless and easy.

Anyhow, US equities managed to wring a little more into the close with the S&P taking the 1.400 level (not a major chart level, that would have been 1.361, as it is, but round figures always look better), a level last seen in May 2008 (hence pre-Lehman). Similar levels for the other US indices, with the Nasdaq, albeit Apple-driven, on Nov 2000 levels. Nice equity decoupling from the rest of the world, one has to say. Asia about positively flat, with China clawing back on earlier losses this week, but still below last week’s close. Rebound taking copper along. Commodities about stable, (noisier) WTI $1.5 lower, Brent unchanged, Gold tick better.
Flat European open in credit and stocks and Bunds getting this week’s accustomed pressure with 10 YRS to test the 2% area. Treasuries weak throughout the week, too, on risk on sentiment (Hit 2.35% y’day from 2.000% last Friday). Further stops triggered late morning / US pre-open, once the 2% broke.
Hard to be safe haven, once not needed anymore. No European data, so morning session drifting until US open and its raft of figures.
US CPI as expected (+2.9%, ex +2.2%). IP was flat (+0.4% fcst, but prior flat revised to 0.4%. Zero sum.), Capacity U 78.7% (78.8% fcst), Michigan confidence a bit on the low side at 17.3 (after 75.3 and 76 fcst). Still levels of late 2010 to Q2/2011 and among the high print since Lehman collapse. E
EUR firmer. European equities up 0.5%. Bunds collapsing.

No sovereign supply today. EFSF announcing issues for next week (Long end benchmark Monday, EUR 2bn 6m bills Tuesday, 5 YRS Thursday). EFSF preliminary 2012 funding plan. March: Ireland EUR 2.8bn, Greece EUR 7bn). Q2: Ireland EUR 2.3bn, Portugal EUR 7.8bn, Greece 10.9bn. Q3:EUR 7.7bn total. Q4: 11.3bn. Thus quite some EFSF supply until summer.
After Italy yesterday, Spain published 2011 debt figures (EUR 735bn, of which about 20% in the regions, less controllable by the central government.  68.5% of GDP, from 61.2% a year earlier and above expectations).

New issues running slow Friday with AFD EUR 1bn 5 YRS MS+55 and Mercialys (running French retailers Casino’s retail property and shopping centres) EUR 650m 7 YRS MS +205 for its inaugural. It’s been a busy week in EUR for corporate deals, which all fared well.
After yesterday’s Madrid EUR 650m 3 YRS at Spain +200, Aragon is jumping on the same bandwagon. Still quite a discount for Spanish regions, compared to Spanish GG names like ICO, which price around SPGB +50s.

ECB deposits up over EUR 40bn to EUR 728bn from EUR 686bn. Spare cash…
VIX closed about stable at 15.4 and began the day down to 14.4. It’s lowest level since June 2007 (Highs were 80 in Nov 2008, then spikes at 46 in May 2009 and 48 and 45 in Aug and Oct 2011).
Oil static to a bit lighter at 105.6 / 124.2 for WTI and Brent (from 106/126) until rumours of concerted US and UK emergency oil stock releases cost a dollar to both, closing 104.4 / 123. Gold steadily sideways at 1648.
Baltic Dry again up to 874 from 866.

10 YRS yields: Germany 2.05% (+7 bp), Swaps 2.45% (+7 bp), Finland 2.46% (+6 bp), Luxemburg 2.47% (+6 bp), Netherlands 2.55% (+7 bp), Austria 2.96% (+6 bp), France 3.01% (+5 bp), EFSF 3.26% (+6 bp), Belgium 3.30% (-3 bp), Italy 4.85% (-1 bp), Spain 5.18% (+1 bp)
Spreads: Swaps +38 (-1), Finland +41 (-2), Luxembourg +42 (-1), Netherlands +50 (-1), Austria +91 (-2), France +96 (-2), EFSF +121 (-1), Belgium +125 (-11), Italy +280 (-8), Spain+313 (-7).
Had a nice yield / credit story shift, pivoting around Core EZ-, about unchanged, Bunds and Core EZ+ crashing and the periphery running high again.

On the week:
-                    All easy
-                    Had EUR 1bn 10 YRS issued by Luxembourg and EUR 4bn 20 YRS by Belgium, next to auctions
-                    10 YRS spreads: 10 YRS swaps +38 (-6), Finland +41 (-3), Netherlands +50 (), Austria +91 (-14), France +96 (-14), EFSF +121 (-11), Belgium +125 (-35), Italy +280 (-23), Spain+313 (-6).
-                    Yield-wise: Germany 2.05% (+26 bp), Swaps 2.45% (+20 bp), Finland 2.46% (+23 bp), Netherlands 2.55% (+26 bp), Austria 2.96% (+12 bp), France 3.01% (+12 bp), EFSF 3.26% (+15 bp), Belgium 3.30% (-9 bp), Italy 4.85% (+3 bp), Spain 5.18% (+20 bp)
-                    Bunds weak. Core EZ+, just as week. Austria, France and the EFSF hanging in there. Belgium doing great after its 20-year deal that rounded up half this year’s needs. Italy, fine as well. Spain remains a bit wobbly here.
-                    2 YRS BKO were 0.15% last week, now 0.33% (+18 bp), 5 YRS OBL were 0.78% last Friday, now 1.07% (+29 bp). So we’re getting some bear steepening here. Compounding a mix of flight from quality, stops and inflation jitters. Ouch!
-                    Credit 119 (from 133 or 10.5% stronger), Financials 191 (from 211 or 9.5%) and Sovereigns down to 225 from 353 (after exclusion of Greece CDS from the index).

-                    European equities +0.9% (from 2519) and the S&P +2.3% (from 1373). Credit again much stronger than equities this week.
-                    EUR 1.318 from 1.311. Has totally lost its risk on / off (temporary) barometer function. One more jobless…
-                    Baltic Dry 874 from 824 (+6%).
-                    VIX 14.9 from 16.7. Another jobless indicator…
-                    Oil 124.7 / 106.00 from 125.9 / 107.50 (-0.9% / -1.4%). Gold 1654 from 1700 (-2.7%). Copper 389 from 385 (+1%). CRB 316 from 318 (-0.5%).

All very easy and relaxed. Greece? Seemingly over, forgotten and digested. Auction on payout on Mon (USD 3.2bn outstanding CDS) Growth? Ah. Someone will manage to trigger it off. Equities? So cool. In case of double-guessing, explain that dividend yield is so much better than bonds, kept low by the CBU around the globe. Spain, renewed wildcard for trouble.

Next week: All in all not much macro data, nor sensitive sovereign auction to kill the mood. Markets might be driven by technical factors and / or charts. Might be interesting to check Draghi’s press conference next Thu on rate outlook, pulling the plug on liquidity support, rampant Target 2 imbalance questions and how to juggle divergent France / Germany and rest of EZ price pressures.

EFSF show of force in bill, 5 YRS and long end sales. But low sovereign supply. Portuguese bills tend to be a non-event. Rarer German 10 YRS ILB auction. Let’s see if inflation fears trickle in here. Greece CDS auction on Mon.
EZ PMI and Ind order Thu. Germany PMI Thu. France PMI and Biz confidence Thu & Fri. Italy Ind Orders and Sales Mon and Retail sales Fri.
US housing data throughout the week. Jobless and leading indicators Thu. Japan empts until mid week. Chinese property prices on Sun and PMI on Thu. Need to watch out for both.
Monday: Not much crispy, but China property.

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