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

28 March 2012 – “Din Daa Daa” (George Kranz, 1983)

Eventually, the CBU piece of yesterday was too much down to earth, as the end of Q1 seems slightly reality-remote. Checking most read news on BBG last night revealed a mix of fascinating market-remote news about college football coach pay, baseball trading card auctions or the Grateful Dead’s re-emergence on cinema screens (a show that happened, yes!, to have been taped the very day of my 20th birthday). Add price corrections of ETNs trading off fair-value for ages, as nearest to reality. So, obviously markets are in a state of a) relaxed reality-remoteness, b) low risk-awareness and c) complacency that the CBU will fix whatever might cross these plans. If 2012 will remain about second guessing the CBU’s second guess of market reaction’s second guess of market realities, we’re in for some more “Din daa daa” and fickle up and down dashes.
Another good piece published by New Normal Bill Gross yesterday, as anchor to the real life, stating his view of the need to increase hedges of fatter tail risks.

US closed slightly negative on further FED stance interpretation and eventually a disappointed view of yesterday’s figures, putting Asian in fierce reverse of Tuesday’s session. China especially weak at -2.5% to over -3%, bringing YTD gains down to a mere 4 to 5%.
Mixed bag of European macro figures. German CPI in line with 2.3% YoY fcst after 2.5%. Final French GDP estimates corrected to +1.3% (from 1.4%). UK Q4 revised lower, too. Recessionary Dutch consumer spending down -1.7%. Italian biz confidence clocking over forecast at 92.1 after upward revision of prior to 91.7 , thus bottoming out (having been well over 100 until last summer). M3 rising to +2.8% YoY (against +2.4% fcst and prior +2.5%), which might increase ECB’s willingness to speed up lately mulled exit strategies. ECB numbers confirm lending to governments has increased (LTRO, caro mio) to the detriment of households. No trickle down yet…
European first quotes only slightly negative at -0.25%, then picking up to a rather sanguine +0.25%. Credit flat. EUR flat. Commodities flat. Sovereigns re-re-reversing yesterday’s move with a stronger periphery. Ominous firewall discussion taking equities and Bunds back down, respectively up to flat by late morning. Din daa daa.

Belgium syndicating its third benchmark in as many months in form of a EUR 4bn 7-year deal at MS +98. Good to fill the curve in aided manner, but often a slightly tricky maturity (either too long or too short for many players). Limited discount, though, but still a discount (in a market that in the last 2 weeks barely paid any new issue premium anymore).
It’s worth stressing that Belgium did quite a good job, compared to Italy and Spain (Ok, it’s not in the same credit basket), by concentrating its funding on longer maturities. YTD EUR 17.5bn were raised institutionally with an average maturity of 13 years (including today’s deal). Not always cheap on a relative value basis, but certainly on historical low levels, the Kingdom has bitten the bullet and should start to relax a little, at least in terms of funding. If my numbers are right about 2/3 of the targeted long end needs for 2012 are now covered.
Italy sold EUR 8.5bn 6m at 1.12% (against 1.20%). No surprise here.

Markets settled to unchanged levels across the board by noon while awaiting US numbers, instead of the wild splish splash of the last days, hence reducing volatility once and for all. US durable goods below consensus at +2.2% and +1.6% (ex transport) with a slight revision of prior data (-3.6% / -3.0% from earlier reads of -4.0% / -3.2%). Looks like another confirmation that things weren’t that bad in the US to kick-start the year, but that the steam is starting to run out somewhat. Small uptick in Bunds, small downtick in credit. Commodities softer with copper standing out (after already sliding during the morning on China weakness).

Had Bundesbank’s Weidman pitching ÜberBuBa, if not ÜberBär: Inflation is too high, Target2 imbalances are indeed huge (but not a worry as long as the Union remains intact) (“Guys, you get the hint?”), hosing the firewall discussion, praising austerity and very much against any softening of the latter. Had Spanish FinMin echoing that Q1 will be just as bad Q4 and that firewalls are the hottest thing in town.
The upcoming ECOFIN in Copenhagen will be a blast…

Risk slightly off afternoon, but losses accelerating into the close.

New issue traffic definitively more hesitant, Belgium’s 7 YRS deal aside. Swedbank senior EUR 1bn 4 YRS MS +107. Smaller corporate trades (sub EUR 500m). Had  Barclays intriguingly issuing some GBP 1.5bn government guaranteed debt

-          ECB deposits up EUR 4bn to EUR 774bn.
-          VIX closing higher at 15.9 in the US, from 15 at COB Europe Tue. Now 16.0
-          Oil heavier on resurfacing talks of strategic oil reserve releases earlier as well as rising US inventories later in the day. 105.3 / 123.9 (from 106.6 / 125.0 WTI / Brent Gold 1672 from 1684 (-0.7%)
-          CRB down 315.2 from 315.2 on energy and copper. Copper 380 from 387 (-1.8%), 384 midday. All levels European COB 17:30 CET.
-          Baltic Dry up 922 after 917 (the now usual daily +0.5%).

-          10 YRS Yields: Germany 1,83% (-5); Swaps 2,3% (-5); Luxembourg 2,3% (-4); Finland 2,36% (-5); Netherlands 2,4% (-6); Austria 2,9% (+0); France 2,96% (+1); EFSF 3% (-4); Belgium 3,41% (+4); Italy 5,09% (-4); Spain 5,31% (-3).
-          10 YRS Spreads: Swaps 45bp (+2); Luxembourg 47bp (+1); Finland 53bp (0); Netherlands 57bp (-1);Austria 106bp (+5); France 113bp (+6); EFSF 117bp (+1); Belgium 158bp (+9); Italy 326bp (+1); Spain348bp (+2).
-          Spreads surprisingly stable. Belgium softer on supply. Should tighten back once market realizes lower future needs. Soft Core EZ soft. Periphery doing ok.

-          EUR swap curve 2-5 YRS 51,2bp (-2,7); 5-10 YRS 72,5bp (-0,2) 10-30 YRS 26,2bp (+0,2). Bull flattening through 5-10 YRS bid.
-          Main 120 (from 117) , Financials 207 (from 203) , Sovereigns 268 (from 267)

Markets eventually reducing movements and volatility entering the final days of Q1. Further interpretation of news or worries to be postponed to next week. Maybe. Din daa daa.

German unemployment rate of fcst 6.8% after 6.8%. EZ Consumer conf of fcst -19, unch to prior / Economic 94.5 after 94.4 / Indu  -5.8 after unch to prior & Services -0.8 after -0.9 Spanish housing permits, US GDP 3% and job claims of 350k fcst after 348. Still waiting for Chinese leading index. Japanese retail sales fcst -0.3% after prior revised to -1.2%.

-          ECOFIN meeting on Fri.
-          DE: Retail Sales (Fri)
-          FR: PPI & consumption (Fri)
-          Other EZ: IT: CPI (Fri) PO: GDP and deficit (Fri)
-          US: Pers. Income & Spending, Chic Purchases, Michigan Conf (Fri) + various housing data throughout the week.
-          Asia: JP: PMI & Ind Prod & Construction (Fri). China leading index (prior 100.25)

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