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

Tuesday 10 April 2012

10 April 2012 – "Ruby Tuesday" (The Rolling Stones, 1967)

10 April 2012 – "Ruby Tuesday" (The Rolling Stones, 1967)

Bloody red closings out there. Markets catching up on the dismal employment figures in the US (only US futures were open for a limited time on Fri). US confirming after time to reflect over the weekend the initial 1% plus drop in equities and 15 bp drop in UST to 2.05%. Asia consequently weak, too. Had a serious 2% minus opening in Europe, but a 1% rebound off lows helped stabilize late Asian quotes.
Eco figures in China have shown rising, above forecast inflation (3.6% from prior 3.2%) and Mar trade surplus figures marked higher than expected Exports, but most worryingly Imports that were just half the forecast. All this leaves the PBOC on a tight rope exercise on managing whether the landing will be soft or hard.
French Production figures below consensus with prior data revised lower, as for the Netherlands. French Biz sentiment stagnating accordingly and at the lowest since Q4/2009. Spanish home sales unsurprisingly declining further. EZ Investor confidence falling, too.
Keeping balancing European average into the positives, German Feb trade over consensus with Jan data revised upwards.

Had 10 YRS Bunds trade down to about 1.66%, which by and large was about record low, last traded in Sep 2011. German 2 YRS trading about 0.11% and 5 YRS 0.65%, also historic lows. All this already in the morning session.
At the same time about all other European sovereigns widened, be it in the periphery on general risk off and following the distrust built up over the last week, as well as in the Core with Austrian and Dutch auctions weighting on spreads.

Government supply across the board: Greece selling EUR 1.3bn 6m bills at 4.55%. The Netherlands issued EUR 3bn 5 YRS at 1.28% (down from 1.35% in Feb), while Austria issued EUR 605m 10s at 2.90% (after 2.89% in Mar) and EUR 715m 5s at 1.73%. France sold EUR 3.8bn 3m bills at 0.08%, EUR 2.1bn 6m at 0.12% and EUR 2bn 12m at 0.25%. Levels about unchanged from 2 weeks ago.
Across the currency spectrum, we noted Switzerland selling 6m bills at minus 0.25%.

No new issues supply.

In absence of early afternoon US figures, Europe (initially quietly) sank into depression and traded lower. US wholesale inventories building up interpreted as piling up, thus negative. Mood du jour… Trashy close!
Probably “Mood de la Semaine”… As was to be expected last week already, markets trade by sentiment (negative) and technicals (negative) in absence of hard data. Holiday season. Thin markets.
Risk off, seriously off – until some official statement of central bank market support might bend things around. In the meantime, risk can retrace some more.

10 YRS Yields: Germany 1,64% (-9); Swaps 2,21% (-5); Luxembourg 2,18% (-6); Finland 2,21% (-5); Netherlands 2,25% (-5); Austria 2,94% (+4); EFSF 2,83% (-3); France 2,99% (+1); Belgium 3,47% (+5); Italy 5,66% (+24); Spain 5,96% (+22).

10 YRS Spreads: Swaps 54bp (+4); Luxembourg 53bp (+3); Finland 56bp (+4); Netherlands 61bp (+5); Austria 129bp (+12); EFSF 118bp (+6); France 135bp (+10); Belgium 182bp (+13); Italy 402bp (+33); Spain 432bp (+32).

Germany’s curve closing on historic lows. Getting back into some seriously hot waters: Spanish 10s are too near to 6% to not have markets players stop out and others test whether there is resistance there. Same goes for Italy, which is further behind in its funding programme than is Spain (25% versus 40%). Had Italian 2-3 YRS trade softer than that part of the curve in Spain (+35 bp versus +30 bp). Spanish and Italian curve too close in shape and levels in order not see the 10 YRS BTP snap back to par with Spain at some time.
Austria and Netherlands weakish on supply. Should clear out over the week. France stable.

EUR swap curve 2-5 YRS 45,6bp (-2,1); 5-10 YRS 73,7bp (+0,5) 10-30 YRS 29,7bp (+0,8).
German 2 YRS BKOs close at 0.09% and 5 YRS OBLs at 0.62%
German 2 YRS now below Japan. If it wasn’t for the flight to quality mood, I’d say this is worrisome for the DAX. Markets starting to price in a decade of deflation???

Main 145 (from 132, 9.8% weaker); Financials at 255 (from 234, 9% weaker); Sovereigns 279 (from 272).
Financials just as badly treated as the rest, for once.
Stoxx Futures 2254 / -3.0% (from 2325) with US equities holding better with the S&P at 1373 (-1.9%, from 1400, Thu 17:30 CET).
EStoxx YTD performance now down to just shy of 1%.
VIX index, which had closed 16.7 last Thu, surged to 19.40 yesterday and opened today above 19 to retest these highs.

EUR 1.308 from 1.306. Had traded up to low 31 handle on US “weakness”, but eventually held back by Euro-jitters
ECB deposits back to EUR 785bn.
Oil 101.8 / 121.3 from 102.9 / 122.9 (-1.1%/-1.3%). Gold up to 1644 for while on safe haven then closing 1635 from 1632 in end of day sell-off. Copper down $ 10 to 372 in Europe then 366 close from 382 (-4.2%), very China-linked. Is breaking 50% 12m HiLo. CRB 302.6 from 306.5 (-1.3%) on general soft sentiment.
Baltic Dry unchanged at 928.
All levels European COB 17:30 CET

Very, very thin on major data.
DE PPI. Spanish Industrial Prod (was -4.2% adjusted in Feb). US mortgage applications, Beige book
Germany will have a shot at trying to wring out a 10 YRS auction on historic lows tomorrow. Italy selling bills.
Shouldn’t bring any major surprise, unless BC was to tend to 1.

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