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 18 April 2012

18 April 2012 – "Dazed and Confused" (Led Zeppelin, 1969)

18 April 2012 – "Dazed and Confused" (Led Zeppelin, 1969)

Hmmm… US close on highs (+1.5%), Asian close similar (+2%), reducing some of the last 2 weeks’ losses. Not sure to have found anything fundamentally changed or so, so let’s pretend equities were oversold and are bouncing back. Chinese property prices still in the dumps, but it might just increase hopes the POBC will relax, after all.
Eventually, I’m not sure this makes much sense. In any case, it’s just that it didn’t work out for Europe this morning anymore, which trailed lower from the start of the trading session.

Spanish 10s still playing catch-up and tightening over 10bp during the morning to hit 5.75% (from over 6.11% on Monday). Beat’s me where that traction comes from? Independent and nowadays un-correlated movement to others… Rest of sovereigns 2-4 bp tighter heading into lunch with European equities confirmed as being down a good 1%. Credit softer, as shedding Tuesday late afternoon outperformance.
EUR back in the 30 handle and commodities generally a bit softer.

Little data restricted to EZ Construction Output for Feb down a whooping 12.9% YoY and Jan numbers revised lower. Likewise, and unsurprising, Spanish Q1 house prices fell another 7.2% YoY.
MBA Mortgage applications up 6.9%, but these are very noisy numbers. Probably driven by last week’s fall in rates.

If things were cool, why on earth would people be willing to pay a record auction low 0.14% at today’s German BKO auction??? EUR 4.2bn sold EUR 800m retained for market interventions. Decent Bid to Cover over 1.8, barely any tail and over half the bids with no price limit, so definite appetite. Is it a give-away? Well, considering they traded down to 0.08% one week ago, today is probably most satisfying, offering a 75% increase in yield…Well, a real Schatz, so to speak…

The again, after Spain and the Netherlands, we now have Italy (today’s non-performer, along with France) trying to backpedal on reaching more austere deficit targets.
Unlike Spain, whose treasury confirmed having so far closed 47% of 2012’s funding, but whose politicians seem to be in a blunder contest lately in order to destabilize investors, Italy was in stealth mode lately. Being put back into limelight might not have been expected. And its funding goals are much further away…

European equities 2% drop and risk reversal move (Bunds tighter by 4 bp, BTPs wider, BONOs unchanged after a 10bp sprint in the morning) somehow mellowed down after official US open, at least in equities. Credit heavy (Main +6, SenFin +7, XO +15), but uptick limited as US indices didn’t manage to crawl into positive territory.
French CDS are back to 200 for the first time since Mid Jan (after a spike to 200 mid Feb).

New issues, which had been on a back foot since the start of the month, saw another two covered bonds, with especially (non-European) (Duh!) CBA’s EUR 1.5bn 5 YRS at MS +88 a success, being 3 times oversubscribed within only a couple of hours and cutting the final spread more than 10 bp from initial pricing thoughts (IPT). Some more (French) (as mostly lately) corporate supply, courtesy of un-rated retailer Galéries Lafayette (EUR 500m 7 YRS MS+300) and Renault’s BBB funding arm RCI with EUR 650m 5 YRS at MS+290.

10 YRS Yields: Germany 1,71% (-4); Luxembourg 2,18% (-4); Swaps 2,19% (-4); Finland 2,21% (-5); Netherlands 2,23% (-3); Austria 2,89% (-3); EFSF 2,93% (-1); France 3,00% (-1); Belgium 3,37% (-2); Italy 5,47% (+1); Spain 5,79% (-7).

10 YRS Spreads: Luxembourg 47bp (+1); Swaps 49bp (0); Finland 50bp (0); Netherlands 52bp (+1); Austria 118bp (+1); EFSF 121bp (+3); France 129bp (+4); Belgium 166bp (+2); Italy 376bp (+5); Spain 408bp (-2).

EUR swap curve 2-5 YRS 46,2bp (-1,3); 5-10 YRS 71,7bp (-0,5) 10-30 YRS 27,2bp (-0,1).
2 YRS German BKOs closed 0,13% (-1) and 5 YRS OBLs 0,67% (-3).

Main at 142 from 136 (4,2%); Financials at 249 after 243 (2,6%). SovX at 279 from 278. Cross at 673 from 653.
Stoxx Futures at 2267 / -1,6% (from 2304) with the S&P at 1385 (-0,2% from 1387, at European close).
VIX index at 18,6 after 17,9 yesterday same time.

EUR 1,312 after 1,314
ECB deposits adding EUR 13bn to EUR 758bn after 745bn.
Oil 103,7/117,8 (WTI/Brent) from 104,6/118,7 (-0,8%/-0,8%). Gold at 1639 after 1654 (-0,9%). Copper at 363 from 364 (-0,5%). CRB closes 301,2 from 302,5 (-0,4%). Brent premium to WTI is keeping its deflation movement, in reaction to the late better tone coming out of Iran discussions (13 after reaching 20 high early Apr, near the historical 21 print in Sep 2011).
Baltic Dry finally back over 1000 for the first time since mid Jan, quoted at 1006 (+1.7%). 55% over early Feb lows.
All levels European COB 17:30 CET

Spanish  (EUR up to 2.5bn Oct 2014 & Jan 2022) and French (EUR 8bn 2014, 2015 & 2017 BTANs + EUR 3bn new 2018 ILB) auction
US claims (fcst 370k after prior 380k), Home Sales (fcst 4.62m after prior 4.59m), Leading Indicators (fcst +0.2% after prior +0.7%)

Rest of week:
Germany: IFO on Fri
France: Running up to first round of presidential elections.
US Nothing on Friday
Asia: Nothing really on the plate in China, likewise for Japan.
Click link on title or below for today’s musical support:

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