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 11 April 2012

11 April 2012 – "It’s Only Wednesday" (Crash Kings, 2009)

11 April 2012 – "It’s Only Wednesday" (Crash Kings, 2009)

Soft US close with S&P going technically through the 50d MAV at 1373 and Nasdaq closing on it (2993). Had a bit of a rebound on better than expected Q1 figures from Alcoa, who traditionally opens the release ball. Asian session of course weaker, but all in all rather cool-headed. Japanese machine orders still strong.
German wholesale prices showing a bit of a decline (2.2% after 2.6% YoY). Spanish industrial output seasonally adjusted down 5.1%, in decline for the 12th time in a row. Capital goods demand deeply affected.
Still after a wobbly start with equities up 0.5%, then down 1% and then up again the same, we had – right on cue, as described yesterday ( Risk off, seriously off – until some official statement of central bank market support might bend things around ) – official smoothing comments from ECB’s Coeuré, mulling about the possibility SMP buying in Spanish bonds (NB: There hasn’t been any ECB buying at all since November last year…) helped bringing down the heat on Spain’s 10 YR, which duly came down from 5.95% to 5.80% by late morning. Funny market when second guessing the opposite’s side second guessing has become the norm. Big game of chicken to the square root…
Spreads tightening on initial Bund weakness with some pre-hedging the newest 10 YRS BUND auction. The new reference being 6m longer had initial quotes wider by 9bp to the outstanding, which seems quite defensive with the swap curve showing only 5 bp. Anyhow, visually it relaxes the spread front.

Who wanted to own Bunds at record lows? Obviously not everyone (today) as the BuBa only received bids for EUR 4.1bn and allocated EUR 3.9bn for an intended EUR 5bn sale. But before speaking of a “failed” auction, remember that the BuBa always can and mostly does retain part of the sales for later market interventions and that Germany has a looser primary dealership system than most other European countries. We had that before and probably will see that again. Seen this, done that.  Beware of the short squeeze risk, given the size of the issue.
Initial reaction in futures of mild disappointment, but no more sell-off than to be expected in a slight risk on atmosphere with equities recovering about 1%, more in the periphery, and Italian 10s 20 and Spanish 10s 15bp tighter by late morning.
Italy had its bills sales covered with EUR 3bn 3m at 1.25% and EUR 8bn 12m at 2.84%. The change in attitude compared to last month shows, given prior results of 0.49% with a higher B/C. 12m had been issued at 1.40% last month with about similar B/C. Quite a steep increase of the bill.

No real new issues supply outside a stealth block trade of EUR 400m 10 YRS at MS +120 for French Legrand.

Afternoon session in a lull. US figures without impact. European equities drifting sideways upwards to around +1-1.5% waiting for some US lead. First quotes in line with futures and not leading further. Same wait and see on improved levels in credit. Improvement running out of steam on lack of US enthusiasm.
Still thinking that “Mood de la Semaine’” remains on the defensive side: markets still trade by negative sentiment and on broken technicals  in absence of hard data. Holiday season. Thin markets. Interesting to note the pre-close volume surge on European equity futures yesterday. Unlike in Bunds, you can see the triggers and wave of sales. Stop-loss? Stop-win? New shorts?
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.
Potential explosive addition to the mix: Greece’s elections, now officially pencilled for 06 May. Unless running a campaign that avoids ugly themes (…), there’s bound to be some verbal challenges on whatever has been achieved so far.

Despite a lukewarm auction, with German (old) 10s at 1.69%, 2 bp above the former record close before yesterday’s, it’s not like witnessed a huge return of appetite for risk. Will use new 10 YRS Bund as reference as from tomorrow, which closed 1.78%
10 YRS Yields: Germany 1,69% (+5); Swaps 2,24% (+3); Luxembourg 2,22% (+4); Finland 2,24% (+3); Netherlands 2,26% (+0); Austria 2,91% (-2); EFSF 2,86% (+3); France 2,94% (-5); Belgium 3,42% (-5); Italy 5,52% (-14); Spain 5,85% (-11).
Italy and Spain bouncing back, but just so and not beyond the initial morning reaction. Italy still above 5.50% and Spain above 5.75%.

10 YRS Spreads: Swaps 51bp (-3); Luxembourg 53bp (-1); Finland 54bp (-2); Netherlands 56bp (-5); Austria 122bp (-7); EFSF 117bp (-2); France 125bp (-10); Belgium 173bp (-10); Italy 383bp (-19); Spain 416bp (-16).
 [Spreads calculated on DBR Jan 2022]

EUR swap curve 2-5 YRS 46,7bp (+1,7); 5-10 YRS 72,4bp (-0,9) 10-30 YRS 28,8bp (-0,8).
German 2 YRS BKOs close at 0.13% (from 0.09%) and 5 YRS OBLs at 0.69% (from 0.62%). So off historic all-time lows…

Main 142 (from 145 y’day, 132 Thu); Financials at 246 (from 255 y’day, 234 Thu); Sovereigns 245 (from 279 y’day, 272 Thu).
So we remain far from last week’s levels.

Stoxx Futures 2270 / +0.7% (from 2254) with the S&P at 1371 (-0.1%, from 1373 at European close).
VIX index still above at 19.3, although off the 21 high traded yesterday.

EUR 1.31+ from 1.308.
ECB deposits EUR 788bn from EUR 785bn.
Oil 101.9 / 119.6 from 101.8 / 121.3 (+0.1%/-1.4%). Gold bouncing back 1.5% to 1659 from 1635. Copper flattish at 365 from 366.
CRB 301.6 from 302.6 (-0.3%).
Baltic Dry up 1.7% to 944, highest since recovery began from the through early Feb.

All levels European COB 17:30 CET

Even less data than today. French CPI.
US PPI fcst 3.1% / 2.8 ex YoY (after 3.3% and 3.0%). Need to check out those Jobless claims 355k fcst after 357k after last Friday’s disaster.

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

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