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 25 April 2012

25 April 2012 – "Hippy Hippy Shake" (Big Soul, 1995)

25 April 2012 – "Hippy Hippy Shake" (Big Soul, 1995)

An AAPL a day keeps the doctor away. And obviously depression, too. There are good days and better days; and today started definitively as being from the latter category. US close ok, but nowhere near great. After-hours release of amazing sales numbers of iPods and iPads had Apple once more beat all estimates. Asia cautiously positive, but here again nowhere near the relief rebound in Europe yesterday. Eventually iPads are cool, but can’t be the sole manifestation of a global economic expansion…

European start hence on the positive side, but speeding up throughout the morning. Still puzzled by the acceleration. No fundamentals. No eco figures. Nada. Niet. A pure rebound…
Even the fact the UK is slipping back into recession with Q1 at -0.2% (fcst was a slim +0.1%) didn’t as much as dent the rebound. Ok, it did cost half a point on the Footsie (and did so for the rest of the day), but, hey, what did you expect…
On the positives, we had the ECB Q1 lending survey showing that banks were less constrained (after the LTRO)(Duh!) and started to relax lending. Good. Well, finally… EUR 1trn was no small change…

In parallel to that, Bunds remained rather stoic, knowing that the new 30 YRS auction was looming (and eventually disappointed). Looks like most of the correction had already taken place yesterday. 10 YRS opened 2 bp softer. Futures had a short-lived knee-jerk reaction when auction results came out, which were just in a lately growing list of under-covered Bund auctions (“failed” is technically not the right expression) to have happened on “RISK ON days”. EUR 2.4bn issued at 2.41% with a mere EUR 2.75bn in bids. The rest will be, as usual picked-up by the Bundesbank (as agent) for market intervention purposes. If history is a guide, the BuBa will get rid of it within days at tighter levels… Whatever. The disappointment was short-lived and, given the small amount issued, any pre-hedging might probably have had to be bought back. Ergo, Bunds back to opening levels. As counter-intuitive as the dynamic in equities.

By midday, we had most sovereign 10s trade up and tightening in to Bunds. France / Belgium / Italy down 5 to 6 bp (versus Bunds wider by 2) and Spain still on the recovery started yesterday and down over 10 bp by noon, through the symbolic 5.75% level, and tighter by 13 to Bunds, hitting, again symbolically the 400 spread mark. Equities up 2% and Credit in line with the general happiness. Note that BONOs were not able to hold below the 5.75% mark in the afternoon and trailed back a little wider.

Durable Goods figures in the US way below consensus, but prior data revised. Mortgage applications below consensus, too. Here again, only a short-lived dent in the mood. For once, US equities seem to surf on their European peers.

It was Nordic Day in the New Issues market with Finland issuing USD 1bn 5 YRS at MS +2, joined by Kommunekredit for USD 1bn 3 YRS at MS +35,, while Nordea Finland raided the EUR market for EUR 1.5bn of 7 YRS covered bonds at MS +40. Usual Nordic magic does its trick. Must have something to do with Santa and the reindeers. Or so... Or a vision of stability and solidity.
Then again, when seeing that even the Netherlands are becoming a hot bed of austerity doubters and fearless deficit spenders…. Even the EU Commission wants a 6.8% increase in its 2013 budget. You need to trust someone, anyone.
The European Union is putting a mimum EUR 2bn 10 YRS benchmark on track, after yesterday’s 7 YRS EFSF. Early talks of MS +60 area.

10 YRS Yields: Germany 1,75% (+4); Luxembourg 2,25% (+2); Swaps 2,26% (+1); Finland 2,27% (+1); Netherlands 2,33% (-1); Austria 2,85% (-3); France 2,99% (-4); EFSF 3,09% (+1); Belgium 3,37% (-4); Italy 5,63% (-3); Spain 5,77% (-6).

10 YRS Spreads: Luxembourg 50bp (-2); Swaps 53bp (-3); Finland 52bp (-4); Netherlands 58bp (-5); Austria 110bp (-8); France 124bp (-8); EFSF 134bp (-3); Belgium 162bp (-9); Italy 388bp (-7); Spain 403bp (-10).
EFSF still on the heavier side, but had tightened unduly over the last weeks and with yesterday’s supply seemingly still weighting. Not that France is back through the 3% mark and that the Dutch are closing back in on Finland. Good Spanish performance, but 5.75% and 400 to Bunds remain resistances. Too much dramatic Spanish government talk. Should rather be as quiet as Italy.

EUR swap curve 2-5 YRS 50,2bp (+3,0); 5-10 YRS 72,8bp (+1,5) 10-30 YRS 28,8bp (+1,2).
2 YRS German BKOs closed 0,12% (unch) and 5 YRS OBLs 0,70% (+3).

Main at 141 from 145 (2,4% tighter); Financials at 247 after 255 (3,3% tighter ). SovX at 274 from 279. Cross at 662 from 675 (1.9% tighter)

Stoxx Futures at 2264 / +1,7% (from 2227) with the S&P at 1386 (+0,9% from 1374, at European close). European stocks are back to last Thursday’s levels...
VIX index at 17,4 after 19,0 yesterday same time.

EUR 1,320 after 1,321. Totally unmoved.                                                                                       
ECB deposits down to EUR 759bn from EUR 768bn.
Oil 103,4/118,0 (WTI/Brent) from 103,7/118,4 (-0,3%/-0,4%). Gold at 1638 after 1648 (-0,6%). Copper at 370 from 367 (+0,8%). CRB closes 301,4 from 301,7 (-0,1%).
Interesting to see that commodities are dragging their feet up here. Somehow, RISK ON is not shared by all.
Baltic Dry at 1137, adding once more 1.9%. If it was a really tradable commodity, I’d say “very bullish”. Next resistance is at 1230...
All levels European COB 17:30 CET

German CPI fcst 2.2% (after 2.3% YoY), French job seekers (2870k fcst after 2868k), EZ eco confidence (fcst 94.2 after 94.4). Italian Biz confidence (fcst unchanged 92.1) . US jobless claims fcst 375k (after 386k) and pending homes sales (+1% fcst after +0.5% MoM).
Having Italian supply for EUR 8.5bn 6m bills

Rest of week:
Germany:, Consumer confidence on Fri
France: PPI and Cons Spend on Fri
SP Retails sales and Unemployment on Fri. IT retail sales Fri.
US: GDP and Mich conf on Fri.
Asia: Japan Industry activity Thu. Busy Fri with Indu Prod, Retail and Construction.

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

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