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

29 March 2012 – “Slipping Away” (The Rolling Stones, 1989)



Wobbly Asian session on the back of the US closing down 0.5%, albeit half a point off lows. Asian losses of 0.75-1% pretty much throughout with China loosing another 1.5%. YTD gains in Asia still above 10% withJapan still clocking in about 20%. It’s China that is fast nearing break-even and Asia’s underperformer for 2012. Had leading index published Jan / Feb combined. Japanese retail sales at +0.2% way above -0.3% fcst.
German unemployment numbers of 6.7% beating 6.8% unchanged to the prior 3 months expectations with the prior number of unemployed revised lower. It’s just a tick, but at 6.7%, this is another 20 YRS low. For eco history trivia fans who might wonder: record high was 12.1% in March 2005. Resilient Germany against the trend in Europe. Add yesterday’s 2.3% CPI coming down from 2.9% in Q4 and you get a sense were salary negotiations in Germany will head to.
Spanish housing permits down 25% YoY in Jan. Ouch. Situation keeps Spanish inflation in check at +1.8% YoY, after +1.9%. Speaking of housing, UK house prices came in negative, too, at -1% MoM. EZ economic sentiment figures, which had been expected about unchanged to prior, low levels, came in a tad weaker.

Like yesterday, uneven slightly negative open, but not far from closing levels throughout all asset classes. Oil down 50cts, if in need to single out something weak, as well as Gold (-1% from European close). Not much follow-up yet to the refried Saudi oil increase promises and possible concerted use of strategic reserves (France, US, UK). Same for Southern European strikes (ItalyGreeceSpain). Markets in morning cruising mode, waiting for some input, either from the official front, ECOFIN leaks or comments or from US data later.
Publication of the EZ confidence figures triggered a slight slide on risk appetite, which was further enhanced by the results of the Italian auction and subsequent periphery slide.
Knock-on effect on wider sentiment, confirming risk off mood. Equities down 1% by noon. Credit wider. EUR down through 33 handle.

The Italian auction was received as having been a bit on the heavy side with EUR 3.25bn 10s @5.24% (vs. 5.50%), EUR 2.5bn 5s @4.18% (vs. 4.19%) and “only” EUR 2.25bn 5 YRS FRN. While yields were duly lower than previously in 10s (and about equal in 5s) and bid to covers slightly higher, the maximum targeted amount of EUR 8.25bn was not reached, knowing that the missing EUR 250m were on the new CCT (FRN), not on the mainstream securities. CCTs being more a domestic thing, this feels rather like some communication glitch between the Tesoro and its primary dealers.
I’m surprised that this triggered such a reaction with BTPs (and BONOs in sympathy) softening spontaneously by 10bp. Fickle markets, low liquidity. Then again, relative levels on Italy were low lately. Surprised people realized that after the auction – not before... Bad timing.
Given illiquidity, freshly loaded books at the top and general unwillingness to catch a falling knife these days, stops seem to have been triggered with Italian 10s hitting 5.25% and Spain flirting again with 5.50%.
Spain detailed next week’s auction, brought forward one day to Wed, because of holidays. Bang in the middle of “Semana Santa”. Somehow this doesn’t bode well for contrarian, domestic support, if needed, to keep the slide from going out of bounds.

Oops… US figures didn’t make for the best reading in an already slippery market:  GDP figures all confirmed as forecasted, but jobless did rise to 359k (fcst 350k) with prior data revised higher, too (364k after est. 348k), somehow drawing a line in the sand above the 350k mark. To be followed.
Had simultaneously Bank of Portugal revising 2012 GDP outlook to -3.4% (from -3.1%). PGBs only widening in line with Periphery. Talking of which, Greece has been quietly slipping away, too. Had S&P raise the question of the possible need for further restructuring.

Equities then gently slipped further away. Nothing panicky initially, but a regular and gradual diagonal down the screens. Interesting (initial) quasi staticity of Bunds and other traditional Core EZ havens (compared to past transfer moves).

New issues lull, but with a well-received TEVA EUR 1bn 7 YRS MS +100 deal on the corporate side. Supply otherwise restricted to covered bonds from Crédit Agricole for EUR 1.5bn 5 YRS MS +63 and German Landesbank HSH for EUR 500m 5 YRS MS +33, both pre-marketed already yesterday and therefore closed before one had the chance to grab a second cup of coffee – and before markets became jittery. Good timing.

-          ECB deposits up EUR 3bn to EUR 777bn.
-          VIX closing at 15.5 in the US, from 16 at COB Europe Wed. Shooting up to 16.9 by EU COB, highest since early March.
-          Commodities initially very stable, but eventually dragged lower with the rest. Oil 103.3 / 122.7 (-1.6% / -1.0% from 105.3 / 123.9 WTI / Brent). Gold 1648 from 1672 (-1.4%). CRB down 307.8 from 315.2 (-2.3%) on energy. Copper tamer at 378 from 380 (-0.5%).
-          Baltic Dry up 930 after 922 (+0.5%). Up 43% since 03 Feb (near historic) low. Better than AAPL (up 33% same period). Must-have stock! Ah, it’s not a stock???

-          10 YRS Yields: Germany 1,8% (-3); Swaps 2,29% (-3); Luxembourg 2,27% (-2); Finland 2,34% (-2); Netherlands 2,38% (-2); Austria 2,88% (-1); France 2,95% (-1); EFSF 2,96% (-4); Belgium 3,45% (+4); Italy 5,21% (+13); Spain 5,45% (+14).

-          10 YRS Spreads: Swaps 46bp (+1); Luxembourg 47bp (+1); Finland 54bp (+1); Netherlands 58bp (+1); Austria 108bp (+2); France 114bp (+2); EFSF 116bp (-1); Belgium 165bp (+7); Italy 341bp (+16); Spain 364bp (+17).

-          Don’t want to sound too much a scaremonger, but the by-now nearly 50 bp uptick in Spain over the last 3 weeks is one of the largest witnessed since Jan 2011. It’s no a simple statistic anomaly. Avowedly, if it hadn’t been for last Friday’s sudden squeeze, this week’s widening would look slightly less severe, but if not countered (ECB SMP?) and with next week’s auction looming, I’d say we’ll be testing 5.75% next week.
-          On Italy, the 10 YRS weakness has been transferred and increased throughout the curve in bad case of bearish flattening. 2 YRS are up a staggering 32bp, 5 YRS 22 bp, 10 YRS 13bp. The CTZ auctioned on Tuesday at 2.35% are now quoted 2.88%. Spanish 5 YRS up 20 bp, too
-          On ECB SMP intervention: about zero buying since November…

-          EUR swap curve 2-5 YRS 48,9bp (-2,8); 5-10 YRS 72bp (-0,7) 10-30 YRS 25,8bp (-0,3).
-          Main 126 (from 120) ; Financials 217 (from 207) on across the board weakness, especially in the periphery; Sovereigns 274 (from 268)
-          All levels European COB 17:30 CET.

End of complacency out there…

Friday: End of week, end of month, end of Q1, end of Japanese fiscal year
Heavy load of Japanese figures, among which PMI (50.5 prior) and Industrial production at +3.7% YoY fcst after -1.3%. German retail sales fcst +0.1% YoY after +1.6%. French consumer spending fcst -2.5% after -2.2% and PPI fcst +4.0% YoY after +4.2%. Italian CPI fcst 3.3% after 3.4%. Portuguese GDP and deficit. US: Pers. Income & Spending, Chicago PMI fcst 63 after 64, MI Conf fcst 74.6 after 74.3 NAPM fcst 58.0 after 58.6. Watch out for prior data revisions.


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