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 8 May 2012

08 May 2012 – "Negative Creep" (Nirvana, 1989)

08 May 2012 – "Negative Creep" (Nirvana, 1989)

Reversing the reversal. Half-tainted split US close and similar Asian session. About unchanged with a slightly weaker bias. Weak European opening with equities falling out of bed after yesterday’s surge.
Themes of the day remain unchanged with Greece’s political vows the major driver, as the merry go-round of government set-up just starting with no more realistic end in sight than another election, seemingly already slated on 06 June. In the meantime, there are bonds to be redeemed that were not PSI-ed.
Adding to the tension is Spain’s recapitalization / nationalization talks of Bankia and its real estate exposure. Same question as yesterday’s: With whose money can Spain manage that without it appearing in its figures? The FROB is deconsolidated from the debt, but certainly is a REAL existent contingent liability.

European data flow again light, as everywhere else. Had yesterday record-breaking consumer credit in the US (Austerity? What austerity???), so the bit of US uptick is leveraged (again). Germany IP again beating expectation, but that was already the case yesterday, with +1.6% YoY ticking (after the prior -1% was revised to flat and against a forecast of -1.2%). Didn’t help the morning blues in Europe, though. US small biz optimism better than expected at 94.5 (fcst 93 and prior 92.5), but then again, if it’s leveraged on people maxing our their credit card...

On the whole, a pretty even and strong government bond performance in Europe in the morning with Bunds again tickling out new lows, but taking most others for the ride as well with exception of Spain as laggard, unchanged by midday, just below 5.75%
Italy once more tagging along the rest of Europe, as stealth rider, and much more discreet than Spain, although here as well, austerity versus growth starts to become a serious debate.
Note that 10 YRS EUR swaps trading a new all-time low at 2.05% today with 2 and 5 YRS back to the all-time lows of 0.90% and 1.32%.

Had a raft of European smaller auctions with the Netherlands selling EUR 2.5bn at 2.14% and Austria going for EUR 660m 5s at 1.41% and EUR 500m 10s at 2.63% (after 1.73% and 2.90% last month).
Bills on the chop as well with Greece (Yes, Greece) selling EUR 1.3bn in 6m bills at 4.69% (after 4.55%), which doesn’t seem that bad, given the short term outlook. Then again, bills never got PSI-ed, either. Belgium out for EUR 1.6bn 3m at 0.18% (after 0.23%) and EUR 1.6bn 6m at 0.23% (after 0.21%). Finally, the EFSF sold a short EUR 2bn at 0.17% after 0.12% with a smaller B/C. Of course, at some stage, the EFSF might get on the hook, which shows in pricing.
Germany will have another shot at auctioning on record lows tomorrow with EUR 5bn 5 YRS. Never mind if doesn’t go through at once...

New issue supply restricted to smaller, opportunistic SSA taps.

Bit of a market respite at US open, but the mood soured, unsurprisingly, as Greek’s left-wing Syriza, now in charge to attempt to form a government, kicked-off the proceed by calling  to repels the Troika promises et al. Athens’ bourse at the lowest in 20 YRS. 2023s quoted 23.25% and 2042s 18.0% (from 20.25 and 16.75% last Friday, ahead of the elections).

Strong RISK OFF close. Eventually, first quotes on Monday morning were probably more right than wrong, as we’re fast nearing these levels again.
Note that French 10s eventually widened a little, as was Italy, a bit more, while Spain went back into reverse, probably targeting 6% very soon again. Credit very weak, too. Bad close, although somewhat off lows. Not sure this helps...

Closing levels:
10 YRS Yields: Germany 1,53% (-7); Luxembourg 2,00% (-6); Swaps 2,05% (-3); Finland 2,03% (-6); Netherlands 2,10% (-5); Austria 2,64% (-3); France 2,80% (+1); EFSF 2,85% (-4); Belgium 3,13% (-1); Italy 5,44% (+6); Spain 5,82% (+11).

10 YRS Spreads: Luxembourg 46bp (+1); Swaps 53bp (+4); Finland 50bp (+1); Netherlands 57bp (+2); Austria 111bp (+5); France 127bp (+9); EFSF 132bp (+3); Belgium 159bp (+6); Italy 391bp (+13); Spain 429bp (+18).

EUR swap curve 2-5 YRS 39,7bp (-6,3); 5-10 YRS 71,9bp (-0,6) 10-30 YRS 33,5bp (-0,8).
2 YRS German BKOs closed 0,08% (-2) and 5 YRS OBLs 0,52% (-6).

Main at 150 from 144 (4,4%); Financials at 256 after 243 (5,5%). SovX at 279 from 275. Cross at 676 from 653.

Stoxx Futures at 2197 / -2,2% (from 2247) with the S&P at 1352 (-1,2% from 1369, at European close).
VIX index at 20,5 after 19,2 yesterday same time.

EUR 1,299 after 1,305. Had traded through 30 handle Monday early morning.

ECB deposits down to EUR 782bn The end of the reserve maintenance period is today. We were at EUR 788bn at the end of the last reserve maintenance period and then had a EUR 135bn drop as well EUR 130bn the month before.

Oil 95,6/110,6 (WTI/Brent) from 97,8/113,0 (-2,3%/-2,1%). Gold at 1603 after 1639 (-2,2%). Copper at 367 from 372 (-1,3%). CRB closes 293,6 from 297,2 (-1,2%). Commodities throughout really weak, too.
Baltic Dry at 1165 from Thursday and Friday new 2012 high of 1157.
All levels European COB 17:30 CET

This week:
Note that today is be a public holiday (Victory Day) with in France.

Germany: Wed Trade Balance, Friday CPI
France: Thu IP –Mar 0.5% (after +0.3%, MoM), Fri Biz sentiment
EZ: EU commission growth forecast
Other EU: Spain 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.

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

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