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 3 April 2012

26 March 2012 – “Da da da ich lieb dich nicht du liebst mich nicht” (Trio, 1982)

Slow Monday morning opening. Asia uneven close, near Friday’s levels. European start was tentatively positive in the +0.25% area, but couldn’t hold, lost 0.5% and only got a bit of support by ever so slightly better than expected Mar IFO numbers (109.8 against a 109.6 fcst, unchanged to Feb. Prior data was actually increased by a tick to 109.7). Market reaction would tend to show that Germany is seen as a) running its own course and that b) market players are discounting of all this numbers, as seen for last week’s PMI numbers, that the “real economy” might be have been blinded by the crisis relief calls of late. The German economy will have a hard time decoupling for good, if growth falters everywhere else. Italian consumer confidence high than expected as well at 96.8 (fcst 93.5 with prior revised to 94.4 from 94.2).
Pre-telegraphed German possible ok of the combined ESM/EFSF “firewall” is stirring less emotions than the (renewed, albeit underlying nagging) question of a possible need for it. As seen on Spanish (unchanged in the morning, after Friday afternoon’s recovery) and (Dutch, on a smaller scale) paper, markets remain fickle and things get slippery very fast.
At the end of the morning Credit was mixed, but not far off its closing levels; Bunds a tick or two better; Sovereign spreads by and large unchanged. EUR a bit softer to 1.32 flat. Commodities a touch softer, too.
Maybe early starters in the US had a more sanguine outlook of the European data, as Bunds fell out of bed and crashed 60 cts and equities turned flat and then positive by 0.25% again. Couldn’t find any suitable explanation.
Anyhow, risk rather on in the afternoon with equities adding another 0.25-0.5% along side friendly US equities. Pending home sales up 13.9% YoY (fcst +9.7%). EUR stopping shorts and adding 130 pips from the morning level, to past 1.33, taking us back to early March levels. High this year was 1.346 on 24 Feb.

Finland coquettish with its austerity pitch and postponing further funding probably to H2. Might help tighten spreads further. In order not to further skew the calendar spread to Bund, as the on-the-run 10 YRS is Apr 2021, and in absence of a new one soon, I’ll start tracking the Finnish 10 YRS spread on an interpolated 2021 / 2025 basis from now on (adds 10 bp).
German 1-year bills sold or EUR 2.7bn at 0.07%. France EUR 6.9bn in 3, 6 and 12m at 0.05%, 0.11% and 0.23%, within 0.01% of earlier sales.
US to issue USD 99bn in 3 auctions this week, so flight to quality material more than available. Might be part of the Bund weakness, too.

New issues starting on a lazy pace, but yielding essentially EUR 750m 10 YRS Telekom Austria at MS +175 on a lone morning floor, plus some announcements of deals to come.

ECB deposits up a chunky EUR 22bn to EUR 785bn. SMP buying (of GIIPS govies) once more at zero.
Interesting to note Draghi’s comment to the Bild that the ECB feels LTRO money is finally NOT trickling into the real economy (yet) (The banks to which the ECB has lent the money have, by and large, not fed this into the economic cycle but have used it to meet old liabilities). So, it’s an assumed carry-trade opportunity to replenish and improve bank balance-sheets – for later use to the economy. Good reminder that on 3 YRS LTRO2, 460 German banks did participate.
VIX closed again below 15 (14.8) on Friday in the US, closing 14.9 in Europe.
Oil static at 107.1 / 125.5 (from 107.0 / 125.1 WTI / Brent at European COB). Gold 1686 from 1660 (+1.5%). CRB 315.7 from 315. Copper from 388 from 380 (+2.1%) in corrective rebound to levels of early last week. Baltic Dry up 912 after 908 (+0.4%).

10 YRS Yields: Germany 1,94% (+8); Swaps 2,38% (+5); Luxembourg 2,38% (+6); Finland 2,45% (+8); Netherlands 2,53% (+9); Austria 2,87% (+1); France 2,94% (+2); EFSF 3,09% (+5); Belgium 3,32% (+2); Italy 5,02% (+4); Spain 5,31% (+2).
10 YRS Spreads: Swaps 41bp (-2); Luxembourg 44bp (-1); Finland 51bp (+1); Netherlands 59bp (+1); Austria 93bp (-7); France 99bp (-5); EFSF 115bp (-2); Belgium 137bp (-6); Italy 308bp (-4); Spain 337bp (-6).
EUR swap curve 2-5 YRS 55,6bp (+2,7); 5-10 YRS 72,7bp (+0,7) 10-30 YRS 24,6bp (-1,5). Bearish steepening.
Sovereign spreads surprisingly stable in the morning, given the swing. Bunds totally erased Friday’s performance and back to Thu levels. Belated afternoon tightening of Core EZ minus (Austria and France back to double digit spreads) and the Periphery as Bunds just tanked further. Italy still over 5%. Spain holding ok and at 5.31% 25bp tighter than the highs of Friday. Fast markets.

Hmmm… End of Q1 week. Can’t find much fundamental in news or supply. ECOFIN meeting on Friday. Lots of Central Bank talk about pulling the liquidity plug (ECB) or not (some FED doves).
Markets falling in and out of love of bonds. Risk rebounding from last week’s bashing. Lacking trend. Not sure there’s much of a direction here. Commodities holding best. Uncertainty hedge? Da da da?

DE cons conf 6 fcst (from 6. Was high since Mar 2011 and before that in 2007, so historically that is already high). Spanish Feb Budget balance. US cons conf 70.1 fcst (after 70.8). CaseShiller composite YoY -3.8% fcst (after -3.99%).
Italian & Spanish bills.

ECOFIN meeting on Fri.
DE: Consumer Conf (Tue), CPI (Wed), Employment (Thu), Retail Sales (Fri)
FR: Q4 GDP (Wed), PPI & consumption (Fri)
Other EZ: IT Biz Conf (Wed), CPI (Fri). SP Mortgages (Mon), Budget (Tue), CPI (Thu) PO GDP and deficit (Fri)
US: Consumer Conf (Tue), Durable Goods (Wed), GDP & claims (Thu), Pers Inc & Spending, Chi Purchases, Michigan Conf (Fri) + various housing data throughout the week.
Asia: JP Small biz conf (Tue), Retail trade (Thu), PMI & Ind Prod & Construction (Fri). Not much in China.

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