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

Friday 4 May 2012

04 May 2012 – "It’s Raining Again" (Moby, 2005)

04 May 2012 – "It’s Raining Again" (Moby, 2005)

Same pattern as yesterday, although the US close was a bit on the heavy side (S&P close 1392, 200d average 1386).Asia mixed to slightly firmer on good services PMI (54.1 after 53.3), which is back on track with 3m average crawling back higher.

That was for the good part. European Service PMI figures all bleak to very bleak with Germany holding best at 52.2 after 52.6 (fcst was unchanged). France dips to 45.2 (from 46.4), Italy to 42.3 (from 44.3) and to 42.1 (from 46.3). All below forecast. Final EZ Service PMI stands at 46.9 after 49.2 and Composite PMI 46.7 after 49.1. Better then expected EZ retail sales (March) didn’t really brighten up the mood (+0.3% after revised -0.2% MoM, still -0.2% YoY).

Actually not much to say about the rest of the morning, as not much happened. Equities down some 0.75% by noon, before rallying back double that in the course of the lunch break, ahead of the US figures. A bit of in the void movement with Credit indices stable.
European sovereigns ranging from unchanged (Hard Core EZ) to -10 for the periphery. Hence, Italy and Spain 10 YRS rather spontaneously down to 5.39% and 5.65% and moving away from the hot plate zone.

Likewise, France moving away from the 3% area to which 10 YRS were stuck before the elections and yesterday’s auction. Feels a little overdone at this stage. Comes Monday, things might look bleaker. Holland’s election seems pretty certain in the latest polls, but re-pricing of French assets overall might become due after second thoughts once on results are on screens.
The possible ricochet effect on the rest of the Eurozone has been felt much lately either. But despite any realpolitik and prevailing realism, rebuilding a functioning Franco-German couple won’t happen overnight. And one can’t expect a sudden turn-about from the “I’ll arm-bend Germany into accepting growth in the compact –without too many efforts”, as that was part of the winning ticket. Austerity was not high on the agenda during the election campaign in FranceOn verra.

No sovereign supply. No New Issues either. Poor capital markets week. Won’t probably be much better next week.

US Nonfarm Payrolls another miss in US figures with 115k created (160k fcst), but with prior figures increased to 154k from 120k. Unemployment rate as such down to 8.1% (8.2% fcst from 8.2%), but this is more an accounting reality with long-time job seekers dropping out of the headline number.
European equities initial knee-jerk, but rapidly back up. Waited for the US open. Probably in the hope again to have QE3 hopes pulling risk assets higher… Strange world. Didn’t work out, though... and things tanked for the weekend. Rainy days. Ugly first week. Sell in May and go away?

More an equity and commodities story today. Credit holding rather well in front of adversity. Note that WTI has cut through the 100 level with no hesitation. Negative dynamic on oil. Gold stable, in refuge function.
Non-core sovereigns gave up most of their intra-day gains into the close, leaving France as best performer and Germany closing the week on yet lower lows across the curve. Still, Spain managed to crawl further away from that 6% “tipping point”.
Hmmm.. Why do I have the sudden urge to check Japanese bonds? 2 YRS 0.11%, 5 YRS 0.22%, 10 YRS 0.82%. Oh, cool! Still some room in 5s and 10s. But, then again, it’s the BOJ squeezing these, not the market.

Closing levels:

10 YRS Yields: Germany 1,59% (-2); Luxembourg 2,04% (-3); Swaps 2,07% (-4); Finland 2,07% (-5); Netherlands 2,14% (-3); Austria 2,69% (+0); France 2,82% (-8); EFSF 2,89% (-3); Belgium 3,18% (-2); Italy 5,43% (-7); Spain 5,71% (-5).

10 YRS Spreads: Luxembourg 45bp (-1); Swaps 49bp (-1); Finland 48bp (-2); Netherlands 55bp (-1); Austria 110bp (+2); France 123bp (-6); EFSF 131bp (-1); Belgium 159bp (+1); Italy 384bp (-4); Spain 413bp (-3).

EUR swap curve 2-5 YRS 41,8bp (-2,5); 5-10 YRS 74,9bp (+0,4) 10-30 YRS 34,3bp (+0,5).
2 YRS German BKOs closed 0,09% (+0) and 5 YRS OBLs 0,55% (-3).

Main at 144 from 141 (2,7% wider); Financials at 244 after 239 (2,0% wider). SovX about unchanged at 273 from 274. Cross a bit wider at 654 from 643.

Stoxx Futures at 2209 / -1,4% (from 2240) with the S&P at 1375 (-1,8% from 1400, at European close).
VIX index at 18,6 after 16,9 yesterday same time.

EUR 1,310 after 1,315
ECB deposits now about heavy-lifting EUR 806bn from 803bn before. Highest ever were EUR 827.5bn early March, just after LTRO2 was paid out. Only had overall 8 readings above EUR 800bn. So what was the question about the utilization of the LTRO cash? No trickling into the economy yet… Bah, let’s wait a bit longer. Then again, we’re nearing the end of the reserve maintenance period on 08 May (Wed). Were at EUR 788bn at the end of the last reserve maintenance period and then had a EUR 135bn drop. EUR 130bn the month before. Still, this piling up of money seems at odds with the “the crisis is over” mantra and would seem to point to some still lingering serious mistrust among banks.

Oil 99,5/113,3 (WTI/Brent) from 102,9/116,4 (-3,2%/-2,6%). Gold at 1640 after 1637 (+0,1%). Copper at 374 from 373 (+0,2%). CRB closes 298,1 from 302,0 (-1,3%).
The Baltic Dry stayed unchanged at yesterday’s new 2012 high of 1157.
All levels European COB 17:30 CET

On the week (compared to Fri 27 Apr close):
Force is to reckon that this was no good week for risk assets, especially equities (in Europe) and commodities, which led to a flight into bonds. All bonds as the inner-European jitters were slightly less hysterical this week. Bunds are closing another week on another yield lows. Then again, given the levels attained every basis point tighter is getting more difficult to attain in Germany (So! Do you REALLY want to own 2 YRS Schätze at 0.08%? And do you REALLY REALLY WANT to buy 10 YRS Bunds at well under 1.7%), which has led to some good performance by the rest of the European sovereigns with some extra special performance of Belgium, which keeps getting tighter to France. Austria slightly on the heavy side, but has a EUR 1.2bn auction in 5s and 10s on Tuesday. Not big, but it’s not a big country / market either.

10 YRS Yields: Germany 1,59% (-11); Luxembourg 2,04% (-17); Swaps 2,07% (-16); Finland 2,07% (-15); Netherlands 2,14% (-10); Austria 2,69% (-11); France 2,82% (-16); EFSF 2,89% (-16); Belgium 3,18% (-16); Italy 5,43% (-22); Spain 5,71% (-14).

10 YRS Spreads: Luxembourg 45bp (-6); Swaps 49bp (-6); Finland 48bp (-5); Netherlands 55bp (+0); Austria 110bp (0); EFSF 131bp (-5); France 123bp (-5); Belgium 159bp (-5); Italy 384bp (-11); Spain 413bp (-3).

EUR swap curve 2-5 YRS 41,8bp (-8,4); 5-10 YRS 74,9bp (+0,3) 10-30 YRS 34,3bp (+4,5).
Interesting flattening move with 5 YRS pushing and pushing. Long end a bit on the softer side.
2 YRS German BKOs closed 0,09% (+0) and 5 YRS OBLs 0,55% (+0), on the week.
Traded new intra-day lows at 0.065% and 0.55% this week.

Portugal quiet with 2YRS unchanged at 11.50%, while 5 and 10 YRS were quote 50 bp wider at 12.00% and 10.75%.
Greek yields quoted down 50 cts to 20.25% in 2023s and unchanged at 16.75% in 2042s.

Main at 144 from 140 (3,1%); Financials at 244 after 245 (-0,3%). SovX at 273 from 275. Cross at 654 from 654.
Financials getting some respite on ok Q1 figures, as well as some respite on the sovereign jitters front. Spanish banks remain in the limelight, though.

Oil 99,5/113,3 (WTI/Brent) from 104,2/119,5 (-4,5%/-5,2%) . Gold at 1640 after 1655 (-0,9%). Copper at 374 from 377 (-0,7%) . CRB closes 298,1 from 303,3 (-1,7%).
Commodities certainly the asset class reacting the most to the round of weak manufacturing figures across Europe and the US.
Baltic Dry up to a new 2012 high of 1157, overcoming some mid-week corrections to 1149, and up just a tick from last Friday’s 1156.

Stoxx Futures at 2209 / -3,7% from 2293 with the S&P at 1375 / -1,8% from 1400, at European COB last week.
VIX index at 18,6 after 16,2 last week.
EUR 1,310 after 1,326 last Friday

Next week:
Note that following French election son Sunday 06 May, Tuesday will be a public holiday (Victory Day) with many players off on Monday, which happens to be the UK will May Day on 07 May.
Data flow rather thin. Auctions concentrated on Tuesday. As lately, markets open to any input…

Germany: Mon Factory Orders -2.8% fcst (after -6.1% ,YoY), Tue IP -1.2% fcst (after -1% YoY), Wed Trade Balance, Friday CPI
France: Thu IP –Mar 0.5% (after +0.3%, MoM), Fri Biz sentiment
EZ: Mon Sentix sentiment -14.5 fcst (after -14.7), EU commission growth forecast
Other EU: Spain Industrial output Mon, Housing transaction Thu, CPI Friday, Italian IP on Thu
US: Inventories on Wed, Trade balance and jobless claims Thu, PPI and U Michigan Fri.
Asia: Chinese data flow mainly on Thu & Fri (Trade balance, IP, Retail Sales). Japan likewise empty until end of the week.

Next market update will be sent on Wednesday.

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

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