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

Wednesday 9 May 2012

09 May 2012 – "Physical" (Olivia Newton-John , 1981)

US closing down, but off lows, with Asia closing in line with Europe in the across the board -1.5% vicinity in equities. No real overnight data, with exception of Japanese reserve assets about stable and still near all-time highs. Can’t see much change in foreign currency assets, so whatever Japan has bought in Europe lately must have simply replaced maturing assets. There goes the support for Europe pitch. Still, better than outright sales anyway.
Had a see-saw opening with European equity futures attempting a 0.75% rebound in pre-open, just to crash back 1% once bourses starting trading, then up again 1% and down again 1.5%. All within one hour. Physical, very physical…
European data flow remains light and we had once more Germany boasting trade balance numbers in record area, belying any euro-depression infection.

Greece of course on everyone’s mind, but the Spain thing brewing and Spanish bonds, as expected, driven past the 6% mark, trading off nearly 20 bp, and dragging Italy along (10 bp weaker) past the 5.50% mark.

Another German auction on historic lows drew EUR 5.8bn in demand for a new EUR 5bn 5 YRS 0.500% Apr 2017 issued, of which a short EUR 1bn was retained for market interventions by the Bundesbank. A chunky EUR 3.3bn of bids were unpriced, hence” at market”. Average yield at 0.56%... Pick up to the outstanding reference 2 bp.

After the last days of calendar disruptions (elections, holidays), finally some supply from Volkswagen on the corporate side with EUR 1.5bn 5 YRS at MS +65. Caterpillar shovelling in EUR 600m 3 YRS at MS +38. Both issues very oversubscribed with books in the EUR 4bn area. Had as well EUR 1bn 20 YRS government-guaranteed Austrian Railways at MS +95 flying out of the window at tight RAGB +20. But yield is hard to find these days.
We as well saw a domestic-targeted senior bank exercise for German shipping finance specialist DVB. Very domestic, but we haven’t had much senior ware of late, so worth the mention. Then again, no seniors for known reasons…
As things never disappear, even if forgotten for a while, we should see Moody’s taking a shot at the European finance industry in the coming days/ weeks. Won’t help collateral posting issues… Stress is not the rating downgrades as such (Where’s the surprise here? Duh!) , but the following rating triggers.(Ouch! Financials up 10 bp again today…).

Lunchtime situation stabilizing on lower levels. Equities down 0.75%-1% (with the IBEX crashing 3%). Bunds yet again on new lows of 1.52%. Spain bang on the 6% mark. Italy over 5.50%. France again weaker (out by 7bp), after yesterday’s afternoon reversal (but at 2.86% still well below 3%). Credit indices very weak with the Main up 5 points and Financial aforementioned 10 points. Had bit of a rebound in commodity prices yesterday evening with the US closing off lows.
US mortgage applications higher than the prior week, then again rates are lower, too, with UST 10s at the lowest since early Feb (1.81%). Noisy figures, too. US inventories rising less than expected at +0.3% (fcst was +0.6% after prior +0.9%).
Stoxx nearing December 2011 lows at 2203.

Credit consistently weaker than equities throughout the day. There’s further pain to come in equities. Especially with the closing squeeze taking equities to more or less unchanged. Odd equity traders. Up, down, up, down, down, up, up. Physical...

Old habits die hard: had to check LIBOR-OIS spreads, but both EUR (0.376) and USD (0.316) haven’t really widened from their post Dec 2011 lows (yet). EURCHF at 1.201. Nope, no movement there either.
Spanish 10s at 6.05% by mid-afternoon, up nearly 25bp on the day, with Bunds quoted below 1.50% (Japan 0.86%). Bail-out trauma: check the curve. Ah! Italy and Spain bear-flatten. Bad. But get’s really worrisome once inverted – and there’s still room for that.

Had German officials forcefully reminding everyone felling concerned that they wouldn’t budge on any of their positions.Grexit certainly doesn’t seem a taboo anymore – seemingly for no one. (Greek bonds now 23.50% and 18.25% for the 2023s and 2042s, from yesterday’s 23.25% and 18%). Doesn’t look easy out there. Must keep in shape.  Up, down, up, down, down, up, up. Physical...

Closing levels:

10 YRS Yields: Germany 1,52% (-1); Luxembourg 2,02% (+2); Swaps 2,06% (+1); Finland 2,05% (+2); Netherlands 2,12% (+2); Austria 2,68% (+3); France 2,85% (+5); EFSF 2,89% (+4); Belgium 3,23% (+11); Italy 5,58% (+14); Spain 6,05% (+23).

10 YRS Spreads: Luxembourg 50bp (+4); Swaps 55bp (+3); Finland 53bp (+3); Netherlands 60bp (+3); Austria 116bp (+5); France 133bp (+6); EFSF 137bp (+5); Belgium 171bp (+12); Italy 406bp (+15); Spain 453bp (+24).

EUR swap curve 2-5 YRS 39,2bp (-0,4); 5-10 YRS 69,6bp (-2,2) 10-30 YRS 31bp (-2,5).
2 YRS German BKOs closed 0,07% (-1) and 5 YRS OBLs 0,53% (+1). New lows. But German bonds trade new lows every day...

Main at 157 from 150 (4,4%); Financials at 267 after 256 (4,2% wider). SovX at 285 after 279. Cross at 696 after 676.

Stoxx Futures at 2188 / -0,4% (from 2197) with the S&P at 1348 (-0,3% from 1352, at European close).
VIX index at 20,7 after 20,5 yesterday same time.

EUR 1,295 after 1,299
ECB deposits closing the reserve maintenance period at EUR 823bn, up from EUR 782bn. This is near the all-time high of EUR 828bn, deposited early March. 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 96,1/112,2 (WTI/Brent) from 95,6/110,6 (+0,5%/+1,4%). Gold at 1589 after 1603 (-0,9%). Copper at 364 from 367 (-0,8%). CRB closes 293,5 from 293,6 (unch).
Baltic Dry falling back to 1156 from 1165 yesterday’s 2012 high (Thu & Friday were a new 2012 high at1157).
All levels European COB 17:30 CET

This week:
Germany: Friday CPI
France: Thu IP –Mar 0.6% (after +0.3%, MoM), Fri Biz sentiment
EZ: EU commission growth forecast on Friday
Other EU: Spain Housing transaction Thu, CPI Friday, Italian IP on Thu and a chunky EUR 10bn in bills (EUR 7bn 12m and EUR 3bn 3m)
US: 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:
(Too good! The 80s were fun J Awesome bass slapping solo here…)

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