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, 3 May 2012

03 May 2012 – "Barcelona" (Freddy Mercury & Montserrat Caballé, 1987)


03 May 2012 – "Barcelona" (Freddy Mercury &  Montserrat Caballé, 1987)

Okay-ish, albeit slightly negative US close. Same in Asia. Not much to write home about, but the European start was positively spirited with equity indices pretty much all up 1% at the open. Markets then just hovered there, spending time, waiting for the Spanish and French auction outcomes, and then waiting further for the ECB and then US figures.
Nothing in terms of data with exception of EZ PPI coming out a tad softer than expected at 3.3% from prior 3.6%, somehow cajoling people in hoping that this could mellow down the ECB.

French presidential debate no game-changer, and hadn’t been expected to be either. Not much in terms of revelations and hence no immediate impact and none on the auction.

EUR 7.4bn were thus sold in 4 lines with most in the on-the-run 10 YRS. EUR 1.1bn 2017 at 1.89% (after 1.96% last month), EUR 1.6bn 2021 at 2.85%, EUR 3.3bn 10s at 2.96% (after 2.98% last month, thus stable) and EUR 1.5bn 2025 at 3.31%. Bid to covers ranging from 1.98 to 3.6 with the lowest in the on-the-run 10s. Having underperformed yesterday (2.96% close) and auctioned with a 2bp discount, the bonds then snapped tighter by 5 bp once results came out.
Spain reached the top end of a (small) EUR 2.5bn auction with about EUR 1bn 3s at 4.04% and slightly over EUR 1.5bn in short  and long 5 YRS at 4.75% and 4.96% in decent bid-to-covers. Short 5s with the highest B/C at 3.7 as well with the highest tail of 18 cts / 4.4 bp. Overall probably ok, but nothing immense, either. We’ll note that the price tag in 3s has increased from 3.46% mid April and below 2.50% mid March.
Same relief tightening than in France.

FranceBelgiumItaly and Spain all 4 tighter in 10s by noon. AAA Gang +1 bp. Shorter German +1 and +2 in 2s and 5s. Equities up 1.25% and credit indices tighter by 2 bp entering the lunch period.

ECB unchanged, of course. Despite visiting Barcelona.  Had the market then traded off nearly 1%, despite better than expected US jobless claims (365k versus 379k fcst and prior 388k, revised to 392k), when Draghi started to speak and made clear that the ECB’s vision of fiscal compact and growth compact didn’t mean a “free for all” spending spree, but real discipline. The ECB sees itself as already being accommodative and still mulls stimuli exit strategies. Pitching the question where the EUR idea should be in 10 years from now, doesn’t obviously deliver answers on the short term. Whatever the outcome, hopes for (immediate) ECB leniency were somehow doused, but Draghi’s nod to Italian and Spanish efforts  were seen as a stamp of approval (at least for today).
Then again, not that bad and we witnessed a good rotation around Holland / Austria with the periphery tighter (-4/-6) and Bunds softer (+3).

US non-manufacturing ISM at 53.5 (after 56 and fcst 55.3) was just one more missed US data and brought risk assets from a morning RISK ON back to RISK NEUTRAL. Dow is high. S&P has been snaking with its 50s average (now 1387) for a while. Tomorrow’s payroll will need to be watched carefully.
2280-2300 area in Stoxx futures / 2320-40 on the cash index seems to become a real resistance. On cash 2341 is 200s average, 2372 50% HiLo. If we take the rebound from the Sep 2011 lows, we get 2360 and 2273 resistance and support Fibo levels, with the support obviously to nearer.

Had Fitch spoiling the mood somewhat, as when mulling alternative scenarii for “Europe’s muddling through” (sic)(preferred scenario), they did mention the possibility of Greece leaving the EUR, which would result in an immediate downgrade of the rest of the IIPS for them. Timing-wise, this comes as rumours out of Greece about further elections being already lined up for after the summer, if no government collation can be put in place…

German yields by and large still about at record lows, give or take 1 bp.

New Issues once more limited to a German SSA issuer with NRW.Bank, the development bank of North Rhine-Westphalia and guaranteed by the latter, raising EUR 1.75bn of Nov 2015 at MS flat.
Had Iceland coming back to the USD market with 10 YRS to be priced later, showing that markets DO forgive – or have a short memory… Had some rather good traffic in USD new issues lately with financials and European corporates doing rather well for multi-billion / multi-tranche deals (BP USD 3bn 5s and 10s, Glaxo Smithkline USD 5bn 3s, 5s and 10s, Ericsson USD 1bn 10s).


10 YRS Yields: Germany 1,61% (+0); Luxembourg 2,07% (-2); Swaps 2,10% (-3); Finland 2,11% (-1); Netherlands 2,17% (-1); Austria 2,69% (-4); France 2,90% (-5); EFSF 2,93% (-2); Belgium 3,20% (-8); Italy 5,49% (-4); Spain 5,77% (-6).

10 YRS Spreads: Luxembourg 46bp (-2); Swaps 50bp (-3); Finland 50bp (-1); Netherlands 56bp (-1); Austria 108bp (-5);France 129bp (-6); EFSF 132bp (-2); Belgium 159bp (-8); Italy 388bp (-4); Spain 416bp (-6).

EUR swap curve 2-5 YRS 44,3bp (-1,1); 5-10 YRS 74,5bp (-2,0) 10-30 YRS 33,8bp (+0,6).
2 YRS German BKOs closed 0,08% (+1) and 5 YRS OBLs 0,58% (+2).

Main at 141 from 140 (0,3%); Financials at 239 after 239 (0,3%). SovX at 274 from 275. Cross at 643 from 642.

Stoxx Futures at 2240 / -0,6% (from 2253) with the S&P at 1400 (-0,1% from 1402, at European close).
VIX index at 16,9 after 17,2 yesterday same time.

EUR 1,315 after 1,316
                                                                                                                                                        
ECB deposits at EUR 803bn from 789bn. Breaching the 800 mark, here...
Oil 102,9/116,4 (WTI/Brent) from 105,3/118,1 (-2,3%/-1,4%). Gold at 1637 after 1652 (-0,9%). Copper at 373 from 378 (-1,2%). CRB closes 302,0 from 305,3 (-1,1%).
Commodities actually the most hit in risk assets on global slow-down.
The Baltic Dry trading out a new high at 1157, from 1149 yesterday. So back in the ring...
All levels European COB 17:30 CET

Tomorrow:
Thin again in Europe. Services PMI around Europe. EZ retail sales fcst 0% after -0.11 MoM / -1.1% fcst YoY
US non-farm payrolls fcst +160k after 120k. Unemployment fcst stable at 8.2%

Note that following French election son Sunday 06 May, Tuesday will be a public holiday (Victory Day) with many players off on Monday 07 May, which happens to be when the UK will celebrate May Day. Any pre-positioning / squaring ahead of French, Greek (and German local elections) will need to take place tomorrow.

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

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