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


Thursday 26 April 2012

26 April 2012 – "The Twist" (Chubby Checker, 1960)


26 April 2012 – "The Twist" (Chubby Checker, 1960)

Difficult to maintain a relief dynamic as seen over the last 2 days with only few hard facts to support that. The US closed on their highs, initially propelled by Europe with a final gentle pad from Ben B., who hinted that if things didn’t work out, he could still afford to buy some more bonds to be supportive (That as well helped to stabilize USTs under 2%). The whole hype and relief somehow didn’t make through the time zones and Asia closed unevenly flat, slightly plus or minus.
Europe had a tentative positive open, which turned out to be rather a sportive up / down / up, ending with a down leg at the end of the morning, as the Italian bill auction came out and as markets finalized thoughts about what might have been said yesterday.
Yes, indeed, Draghi did mention a growth compact and Merkel did mention growth, too. But, hey, that’s like mentioning to look forward to some good weather… What is there to dislike? Sheer austerity has proved not being a remedy per se, but if suddenly everyone starts to haggle in order to spread out savings and measures over time, we’re back to the onset of the crisis. That is unless the ECB, withGermany’s backing, were to open its coffers. And that is a no-go…
The last couple of days’ discussions could lead us on a slippery path, as politicians suddenly feel embolden to start trying to push the theme  “of not yielding to market pressure anymore”. But it’s not the EU that needs to be convinced, but eventually the markets. But, so be it... Twisted dynamics.

On the data front, Italian business confidence declined more than expected, to levels last seen end of 2009. Likewise, eurozone-wide economic confidence indicators missed forecasts, falling back to levels seen end of last year, when things look bleak, and before that end of 2009.

Italy raised the targeted amount of EUR 8.5bn in 6m bills at 1.77%, but the price tag, as for Spain, has been soaring from the 1.12% paid end of March.
Bill auctions pretty much never fail, given their role in bank liquidity management, and there’s not much reading into bid-to-cover ratios and attained issue size (as for bonds). These auctions are less a credit / aversion indicator as such than their price tag. For Italian 6m bills, prices remain tame, compared to 6.50% spike in November and the 3%+ price tag around that period, but we’re off the post-LTRO lows at 1.12% and 1.20% in Mar and Feb.

By midday sovereign debt across Europe had basically reverted yesterday’s ENTIRE move with Bunds down 6 bp on one end and Spain up 8bp to 5.85% on the other end. French pivot at 3% and Italy back to test the 400 bp spread to Germany.
RISK ON, OFF, ON, OFF… Still, equities down “only” 0.75% and credit only a little wider. Commodities for choice all stronger. Currency unchanged. So, we ended the morning with a bit of diverging attitudes among asset classes here.
Disappointing US jobless claims of 388k (fcst 375k) added to the pressure with equities down an additional 0.5% with another 1-2 bp added to the rotation in sovereign debt. One hour later, with the US opening about unchanged, that latest dip was digested and pending Mar home sales of 4.1% (fcst 1%) helped to stabilize things in the US to about unchanged and European equities to reduce losses (with the exception of Spain). US driven by equally twisted dynamics of “in case of further bad figures, further Ben support”.
Still, if in doubt, buy German Bunds: 2 YRS traded a new all-time low below 0.09%, 5 YRS are within 1 bp of Monday’s low, 10 YRS are back with a vengeance and the BuBa can certainly unload what it hoarded yesterday in 30 YRS with a 50 cts / 2 pb gain.

New Issues initially confined to the European Union closing its Q2 funding needs with EUR 2.7bn 10 YRS benchmark priced at MS +56, from yesterday’s 60 area initial thoughts for a minimum EUR 2bn transaction. Done and dusted in 2 hours. Good timing and execution, as the deal was covered before the mood slumped. Books grew to a healthy EUR 7bn. Had the EFSF increased its latest 20 YRS deal by EUR 1bn at MS +105.

10 YRS Yields: Germany 1,69% (-6); Luxembourg 2,21% (-4); Swaps 2,23% (-3); Finland 2,21% (-6); Netherlands 2,26% (-7); Austria 2,81% (-4); France 2,98% (-1); EFSF 3,05% (-4); Belgium 3,35% (-2); Italy 5,62% (unch); Spain 5,81% (+3).

10 YRS Spreads: Luxembourg 52bp (+2); Swaps 56bp (+3); Finland 53bp (+0); Netherlands 57bp (-1);Austria 113bp (+2); France 129bp (+5); EFSF 136bp (+2); Belgium 167bp (+4); Italy 394bp (+6); Spain412bp (+9)
Core tighter. Holland back into the “good” camp. France pivoting on 3% mark. Spain weakish.

EUR swap curve 2-5 YRS 50,7bp (+0,5); 5-10 YRS 74,3bp (+1,5) 10-30 YRS 29,4bp (+0,6).
2 YRS German BKOs closed 0,09% (-3) and 5 YRS OBLs 0,63% (-7).

Main at 143 from 141 (1,2%); Financials at 248 after 247 (0,6%). SovX at 275 from 274. Cross at 665 from 662.

Stoxx Futures at 2251 / -0,6% (from 2264) with the S&P at 1391 (+0,3% from 1386, at European close).
VIX index at 16,8 after 17,4 yesterday same time.

EUR 1,322 after 1,320                                                                                                                    
ECB deposits jumping to EUR 782bn after EUR 759bn.
Oil 103,9/119,4 (WTI/Brent) from 103,4/118,0 (+0,5%/+1,2%). Gold at 1654 after 1638 (+1,0%). Copper at 374 from 370 (+1,0%). CRB closes 302,9 from 301,4 (+0,5%). Brent back 2$ over 120 / 90 in EUR. Copper off 360 bottom and harking back to 375/80 levels. Gold reacting to QE hopes.
Baltic Dry at 1148 after 1137.
All levels European COB 17:30 CET

Tomorrow: To close the week, Italy will auction about EUR 6bn (EUR 2.5bn 5s, EUR 2.5bn 10s, about EUR 1bn 4s and 7 YRS)
German consumer conf at 5.9 fcst after 5.9. French consumer Spending (fcst -0.2% YoY after +0.5%). Spanish Retails sales and Unemployment IT retail sales. US GDP

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

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