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, 24 April 2012

24 April 2012 – "Flying High Again" (Ozzy Osbourne, 1981)


24 April 2012 – "Flying High Again" (Ozzy Osbourne, 1981)

Breathe in, breathe out. Uh. Recovery time! US managed to close half a point higher than in the afternoon, albeit negatively and with the S&P still stuck below the 50d MAV (1380). Asia slightly more resilient and flattish from a helicopter view.
Not much in terms of hard data. French consumer confidence actually increasing (had been expected 87 unchanged, came at 88), but that may be due to all promises given so far that things would all change after the elections. Spanish mortgages still in free-fall and by free-fall we’re talking about nearly 50% down YoY. Never attained levels so far.
Still, markets taking a breather and trying the uptick.

The Dutch bonds auction went well with some serious bottom-fishing. Having added a 25 YRS tranche to the mix, only EUR 1bn 2s were sold at the depleted 0.52% level (from 0.58% yesterday), while EUR 1bn 2037s went over the counter at 2.78% (a relatively tight 39bp over Bunds).”Bottom fishing” on that long tranche quite limited, as the latest low was only around 2.60% early march and that we had traded 2.90% mid March (when the equities traded out their highs and inflation was all the rage)(seems like a long time ago already). Whatever, strong snap back of the Dutch 2s after the auction with the later tightening 10 bp at once, taking Dutch 10s along for the ride. Storm in a water glass for the Dutch? At least for the moment, the polders are not yet flooded and players, after yesterday’s initial risk aversion, are still counting the Netherlands among the more disciplined folks. As for France, it will be needed so see and hear what promises the election campaign might bring.
Spain sold EUR 1.9bn out of an already reduced EUR 2bn target (from EUR 3bn) of 3 and 6m bills at 0.63% and 1.58% (after 0.38% and 0.84% last month). Good bid to cover, but short of the maximum amount. Bit of a relief, but at what price? O LTRO, LTRO, wherefore art thou LTRO?
Finally, Italy rounded off the supply with EUR 2.5bn of 2 YRS zeros at 3.35% (from 2.35% last month). Maximum amount, but 100bp price tag. Added some EUR 1.4bn ILBs. Gets us back about halfway between Jan (3.76%) and Feb (3.01%). O LTRO, LTRO, wherefore art thou LTRO?

All this comforted markets into a general mild recovery into the lunch period across all asset classes. Bund counter-movement from its historic lows only limited though (+3). The Netherlands and Spain 7 tighter, France 4. EFSF wider on supply. Equities up 1%, but Credit just a tick tighter. Commodities up 0.5-1% from European closing levels.
With major US figures not due until 16 CET, markets drifted sideways from there in search of further lead. Static first, slight heavier later. Lot of verbal crossfire with key words such as “fiscal treaty”, “discipline”, “austerity” and “growth” out of the different political sphere… Dutch in full force on the subject this afternoon, while we’re still awaiting some French statements. Germany sounding a hawkish horn with its Top 2 trade suddenly sounding like wanting to betray “the Force”.
(For Trivia lovers, Germany’s Top 10 2011 cumulated ex- and imports: FR, NL, CHina, US, UK, IT, A, BE, CH, PD. Source Destatis)

US figures not especially brilliant (Cons sent holding just so, house prices lower, but unadjusted sales higher), but good enough for a positive open, propelling European risk higher, in sync tick by tick to +1.5%.
It’s sovereign risk that suddenly got compressed in the afternoon with initially slower Spain and Italy joining tighter French and Dutch bonds. Spain shifting away from the symbolic 6% mark – and closing in on Italy. EFSF lagging today on supply.

Rest of the afternoon in short-squeeze mode... Odd. Seems overdone. But then again, yesterday’s bashing was probably too much, too...

EFSF shared the New Issues floor with EUR 3bn 7 YRS at MS +77 (had been mandated and marketed as EUR 3bn minimum) with French BPCE issuing a EUR 600m increase of an outstanding 10 YRS covered bond at MS +120. Finalnd, in the meantime, has announced a 5 YRS USD benchmark, which, given its funding schedule for the year, should bite further into supply and help maintain Finland tight to Germany.

10 YRS Yields: Germany 1,70% (+6); Luxembourg 2,23% (+5); Swaps 2,25% (+4); Finland 2,27% (+2); Netherlands 2,33% (-8); Austria 2,88% (-5); EFSF 3,08% (+8); France 3,02% (-7); Belgium 3,41% (-6); Italy 5,65% (-7); Spain 5,84% (-15).

10 YRS Spreads: Luxembourg 52bp (-1); Swaps 55bp (-2); Finland 56bp (-4); Netherlands 63bp (-14); Austria 118bp (-11); EFSF 137bp (+2); France 132bp (-13); Belgium 171bp (-12); Italy 395bp (-13); Spain 413bp (-21)
Spain off the sticky 6% mark. Italy below symbolic 400 to Bunds. France back to the late stable 3% area. Dutch back in grace. EFSF lone underperfomrer on supply.

EUR swap curve 2-5 YRS 47,2bp (+2,2); 5-10 YRS 71,3bp (+0,6) 10-30 YRS 27,5bp (+1,4).
2 YRS German BKOs closed 0,13% (+2) and 5 YRS OBLs 0,67% (+5).

Main at 145 from 149 (-2,8%); Financials at 255 after 262 (-2,6%). SovX at 279 from 285. Cross at 675 from 692.

Stoxx Futures at 2227 / +2,0% (from 2183) with the S&P at 1374 (+0,9% from 1362, at European close).
VIX index at 19,0 after 20,1 yesterday same time.

EUR 1,321 after 1,313                                                                                                                    
ECB deposits down to EUR 768bn from EUR 775bn.
Oil 103,7/118,4 (WTI/Brent) from 102,0/117,6 (+1,6%/+0,7%). Gold at 1648 after 1632 (+1,0%). Copper at 367 from 361 (+1,5%). CRB closes 301,7 from 298,9 (+0,9%). Happiness across the boards...
Baltic Dry at 1116, adding once more 2.4%. Had a weak start into 2012, but has become unstoppable lately.
All levels European COB 17:30 CET

Tomorrow: Not much out there…
German New 30 YRS auction (last 30 YRS offering were at 2.60% in Jan, now quoted 2.41%). UK Q1 GDP, if looking over the Channel.
US durable goods (ex trans) fcst +0.5% (after +1.8%). FOMC unchanged.

Rest of week:
Germany: CPI on Thu (fcst 2.2% after 2.3% YoY), Consumer confidence on Fri
France: Employment on Thu, PPI and Cons Spend on Fri
Other EU: EZ confidence figures on Thu.
SP Retails sales and Unemployment on Fri. IT Biz conf Thu and retail sales Fri.
US: Jobs and home sales on Thu. GDP and Mich conf on Fri.
Asia: Japan Small Biz conf Wed. Machinery orders Wed. Industry activity Thu. Busy Fri with Indu Prod, Retail and Construction. China Leading indicator on Tue.

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


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