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

27 March 2012 – “Tenth Avenue Squeeze [Freeze] Out” (Bruce Springsteen, 1982)

Monday morning conf call at the CBU (Central Banks United): “I felt a great disturbance in the Force. We had a risk assets sell-off last week”. ”Still, that Q1 is as good as it gets. Never did we manage a better surge in the past”. “Yeah, but guys, let's close that one on a better note. We’re supposed to deliver hope, if not growth! Anyone a good pitch to keep the faith out there? Wen, what about buying some European debt story?”. “No, been done too often and we already fixed the Yuan at record high.”. “Mario? Oli?”. “Can't add more than the fire wall story, but some rebels in the EZ Empire start to reject the austerity thing, north and south. And I've already said as much that while the LTRO was great, it didn't trickle into the economy...”. “HMS Treasury?”.  “We are already heavy-lifting.”. “Ben? Ben! You guys seem to do fine. Why don't we pretend to turbo-boost the recovery grass roots???”. “Come guys, QE3? Already? No way markets will buy that!”. ”So what?! As long as we close that Q1 on a reaaaal cool note.”. “Bah, why not? Let's unleash the 10th Avenue Squeeze Out then.” “And what about the rest of the year?”. “Ah. Blimey! We’ll just see then.” End of conf call.

Back to reality: Good US surge yesterday, following on dovish Bernanke story. It did take well with Asia (Chinaaside, mulling its 5.2% profit fall for Jan & Feb, compared to last year) and spilled over into Europe, although one could have expected a stronger reaction. Still, good for +0.5% at open and then crawling higher to +1% - before taking a bath later.
Macro figures showed German consumer confidence a tad below forecast at 5.9 (fcst 6, after prior 6. This latter is a 12-month high, though). Import prices about in line with expectations, showing some decline. French consumers surprised on the rosy side at 87 ( after prior 82, forecasted unchanged), bringing the mood of the chronically depressed French back to last summer, respectively late 2010 / early 2011 levels. I’d tend to say that the official “crisis over” calls from the Merkosy team are as much a reason that a vague hope that things will be different after the elections. While yesterday’s late employment figures were better then expected French job-seeker numbers increased from 2.862m to 2.868m.

Spain acted as spoiler, as it sold “only” EUR 2.6bn of EUR 3bn targeted 3m at 0.38% and 6m bills at 0.84% (against 0.40% and 0.76% last month). Lower BC and a first increase in the “again lower than last month” now widely accepted normality. With the majority unable to capture Andalusia, the Bank of Spain expecting further recession, Spanish home prices still falling: it just wasn’t the right day. YTD deficit of EUR 20.7bn after 9.3bn in Jan, that’s 1.9% of GDP, compared to -1.3% same time last year.
Italy sold EUR 2.8bn 2-year zeros at 2.35% (versus 3.01% last month) and EUR 1bn 2019 and 2021 YRS linkers. Bonds wider, as more supply remains this week – in a seemingly less supportive environment. Had first Monti threats to quit, if not supported on labour reform. BTP auction Friday.

In a reversal of yesterday’s midday movement, US early hours saw equities suddenly off 1% and Bunds repay 50 cts to kick off the session.
Same spike in futures volume (Did yesterday’s seller suddenly realized it was a mistake?). EUR off 50 pips to 1.33s. Commodities unchanged from yesterday European COB.
Case Shiller composite on fcst of -3.8% YoY - some stability in the price decline, so to speak. US consumer conf 70.2 on fcst, after revised prior data revised to 71.6 from 70. So, that’s somehow a decline, as was the Richmond Fed at 7 (fcst 18 after 20).

So risk off afternoon…On, off, on, off, on, off…Mainly off, though. Pretty much an out-of-bound equity story. Commodities about flat. Credit, too.

After yesterday’s sluggish new issue activity, we got some more action today. On the corporate side, Glencore priced a size-able double-tranche of EUR 1.25bn 6 YRS MS+250 & GBP 300m 10 YRS UKT +325. Commodities story. Iberdrola managed to price through Spain for EUR 1bn 6 YRS MS +240. ING printed EUR 500m 7 YRS senior paper at MS +140, but the recent rally in senior cash has made buyers more reluctant on size. Nationwide BS for EUR 1bn 55 YRS MS +158.. Add some safe-haven SSA offerings (EUR 2 YRS KfW, USD 3 YRS EIB, Rentenbank, Land Brandenburg).
Russia big hitter with USD 3-trancher of combined USD 7bn USD 5 YRS, 10 YRS & 30 YRS (tbc).

-          ECB deposits down EUR 15bn to EUR 770bn.
-          VIX crashing to 14.3 at US close, a level last seen end of June 2007. Back to 15 by European COB on slightly softer US equities.
-          Commodities stable. Oil at 106.6 / 125.0 (from 107.1 / 125.5 WTI / Brent at European COB). Gold 1684 from 1686. CRB 315.2 from 315.7 Copper 387 from 388. Baltic Dry up 917 after 912 (+0.5%).

-          10 YRS Yields: Germany 1,88% (-6); Swaps 2,34% (-4); Luxembourg 2,33% (-5); Finland 2,41% (-4); Netherlands 2,46% (-7); Austria 2,89% (+2); France 2,95% (+2); EFSF 3,04% (-5); Belgium 3,37% (+5); Italy 5,13% (+11); Spain 5,34% (+3).

-          10 YRS Spreads: Swaps 43bp (+2); Luxembourg 45bp (+2); Finland 53bp (+3); Netherlands 58bp (-1);Austria 101bp (+8); France 107bp (+8); EFSF 116bp (+1); Belgium 149bp (+12); Italy 325bp (+17); Spain346bp (+9).

-          EUR swap curve 2-5 YRS 53,5bp (-2,1); 5-10 YRS 72,9bp (+0,2) 10-30 YRS 25,7bp (+1,1).
Reversal of yesterday’s reversal. Italian weakness resembles Spain’s last week. Like an overdue correction, in correlation to Spain.
Bizarrely enough, Portugal (and Greece) have disappeared as main stream worry (these dates) and are recovering with Portugal quoted 2 YRS 13%, 5 YRS 13%, 10 YRS 11% and the 2037s about 9.50%. That’s something like 200bp lower than Friday. Likewise, GGB stable at 20% to 16% for 2023s & 2042s.

So the 10th Avenue Squeeze-Out petered out. Hard to make much sense out of the movements this week.
Risk on, off, on, off, on, off… Freeze out?

German CPI (fcst harmonized YoY +2.3% after 2.5%), confirmation of French Q4 GDP at 1.4% YoY, Italian biz confidence (fcst unchanged 91.5 after 91.5) , US durable goods for Feb fcst MoM +3% after revised -3.7%, ex transport +1.7% after revised -3.0%. Italian bill auction.

-          ECOFIN meeting on Fri.
-          DE: Employment (Thu), Retail Sales (Fri)
-          FR: PPI & consumption (Fri)
-          Other EZ: IT: CPI (Fri). SP: CPI (Thu) PO: GDP and deficit (Fri)
-          US: GDP & claims (Thu), Pers Inc & Spending, Chi Purchases, Michigan Conf (Fri) + various housing data throughout the week.
-          Asia: JP: Retail trade (Thu), PMI & Ind Prod & Construction (Fri). Not much in China.

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