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, 11 May 2012

11 May 2012 – "Moby Dick" (Led Zeppelin , 1969)

11 May 2012 – "Moby Dick" (Led Zeppelin , 1969)

Starting the day with a platter of whale sashimi. US bank trading losses were not the one thing that was needed to close the week in relaxed manner, as it just adds to the Spanish banking woes. Initial pressure on credit and financial indices wasn’t excessive nevertheless. Pressure on bank stocks, though.
Had a raft of overnight data out of China. Industrial Production grew only 9.3% YoY (after 11.9% and expected over 12%), likewise Retail Sales at 14.1%, which by and large looks healthy, is rather on the lows of the last couple of years and below the 15% forecast. New loans running a slower pace, too. CPI tame at 3.4%. Points to the widely expected view of a rather controlled soft landing? Might revive stimulus hopes (ex housing).
Asia closing the week quite strongly in the red (roughly minus 3 to 5%). Sashimi time.

German CPI unchanged at 2.2% YoY. Spain 2%. Had BuBa’s Weidman strongly refuting suggestions Ur-Frankfurt was getting soft on the matter. French biz sentiment
European Commission forecast unsurprising (link). Might actually be a little on the benign / optimistic side with regards to the outlook. EZ 0.3% contraction A mild, short-lived recession? Ollli Rehn as TV show master: Restraint in credit supply? Bah, balanced by limited credit demand… Oh! And everyone is on track in the deficit cutting competition and everyone is doing just fine, despite the struggle. Everyone is a winner! (But, just a reminder, France is still expected to spell out how to cut the deficit Tzz tzz tzz.).

Italy fared very well with its bill auction: EUR 3bn 3m bills at 0.87% (prior1.25% early April) and EUR 7bn 12m at 2.34% (prior 2.84%). One month ago, BTPs were trading about unchanged at 5.52% (but trading +383 to Bunds). Still successfully flying under the radar screens and rather successfully wiggling off Spanish contagion. Still has lots of funding to do for the year and hasn’t issued much longer debt. Still faring ok at these levels.
Not much in new issues to close the week.

US PPI slightly below consensus at -2.7% ex YoY. Didn’t rock the world. Whale induced weakness with equities down 1% by early afternoon. Credit heavier still. Bunds trying to breach 1.50% for good, but to no avail. University of Michigan confidence indicator at 77.8 after 76 forecast and prior 76.4 stronger than expected. This helped to put a floor under the gloom and to shift equities back to unchanged. Credit remained on the weaker side, though.
Had 10 YRS swaps briefly ticking below 2% today.

Self-inflicted Iberian pain. Spanish banks will be forced to heavily provision real estate and recap via CoCos at the FROB. Question is who funds the FROB…Hasn’t issued much lately. Trades some 50bp over Spain. Pushed Spain wider. Then again, once the real-estate, the banking industry and the refinancing of the regions will be marked-to-market, yes, there won’t be any doubts about Spain left. Full clarity. And Spanish equities down 20% YTD. Question is though if this forced honesty course won’t spiral out of control at some time. Spanish 10s stuck around 6%.

Greek bonds now probably worth 24.5% and 18.75% (in yield), up another 50 bp. Quotes were 20.25% & 16.75% last Friday. And there are EUR 450m non-PSIed FRNs due next week on 15 May.

Closing levels:
10 YRS Yields: Germany 1,51% (-3); Luxembourg 1,97% (-2); Finland 1,96% (-5); Swaps 2,02% (-3); Netherlands 2,03% (-5); Austria 2,59% (-4); EIB 2,67% (-3); France 2,80% (-1); EFSF 2,85% (-3); Belgium 3,15% (-3); Italy 5,50% (unch); Spain 5,99% (+4).

10 YRS Spreads: Luxembourg 46bp (+1); Finland 45bp (-2); Swaps 52bp (+1); Netherlands 51bp (-3); Austria 108bp (-1); EIB 116bp (unch); France 128bp (+1); EFSF 134bp (0); Belgium 163bp (-1); Italy 399bp (+3); Spain 447bp (+6).

EUR swap curve 2-5 YRS 39,1bp (-1,3); 5-10 YRS 65bp (-3,9) 10-30 YRS 24bp (-4,2).
2 YRS German BKOs closed 0,08% (+1) and 5 YRS OBLs 0,55% (unch). Say, didn’t we see yet another new low????

Main at 158 from 156; Financials at 265 after 264. SovX at 285 from 283. Cross at 687 from 685.
Stoxx Futures at 2232 / +0,6% (from 2218) with the S&P at 1362 (+0,2% from 1360, at European close).
VIX index at 18,9 after 19,7 yesterday same time.

EUR 1,294 after 1,296
ECB deposits EUR 703bn after EUR 696bn.

Oil 96,7/112,5 (WTI/Brent) from 97,1/112,7 (-0,4%/-0,2%). Gold at 1589 after 1596 (-0,4%). Copper at 366 from 370 (-1,0%). CRB closes 293,1 from 295,3 (-0,8%).
Too much bad news… China-induced copper weakness
Baltic Dry going further into reverse at 1138 from 1146 before.
All levels European COB 17:30 CET

On the week (compared to Fri 04 Mai close):
Soooo. Another week, another new Bund lows… Eventually the French elections were taken rather bravely (more than I expected) with France barely budging.
Greece and Spain were this week’s spoilers and while 10 YRS BONOs managed to remain South of 6% (although barely) at the end of the week, they shot up by 35bp. Contagion to Italy limited, but existent. Volatile week in equities, but with a week on week result that actually shows a gain. Much more resilient that credit indices, which traded heavily most days and ended the week much wider.

10 YRS Yields: Germany 1,51% (-7); Luxembourg 1,97% (-7); Finland 1,96% (-10); Swaps 2,02% (-5); Netherlands 2,03% (-12); Austria 2,59% (-10); EIB 2,67% (-6); France 2,80% (-3); EFSF 2,85% (-4); Belgium 3,15% (-3); Italy 5,50% (+7); Spain 5,99% (+27).

10 YRS Spreads: Luxembourg 46bp (+1); Finland 45bp (-3); Swaps 52bp (+2); Netherlands 51bp (-4); Austria 108bp (-2); EFSF 134bp (+3); France 128bp (+5); Belgium 163bp (+4); Italy 399bp (+14); Spain 447bp (+35).

EUR swap curve 2-5 YRS 38,8bp (-3,0); 5-10 YRS 65bp (-9,9) 10-30 YRS 24,1bp (-10,2).
2 YRS German BKOs closed 0,08% (+0) and 5 YRS OBLs 0,55% (+0), on the week.
Traded new intra-day lows at 0.065% and 0.55% this week. Trading new Bund lows every week anyway…

Portugal quiet with 2YRS unchanged at 11.50%, with 5 YRS a bit wider at 12.25% and 10 YRS unchanged 10.75%.
Greek yields have risen strongly to 24.5% from 20.25% in 2023s and to 18.75% from 16.75% in 2042s.

Main at 158 from 144 (9,6% wider); Financials at 265 after 244 (8,5% wider). SovX at 285 from 273. Cross at 687 from 654.
Heavy, heavy, very heavy...
Stoxx Futures surprisingly at 2232 / +1,0% from 2209 with the S&P at 1362 / -1,0% from 1375, at European COB last week.
VIX index at 18,9 after 18,6 last week.

Oil 96,7/112,5 (WTI/Brent) from 99,5/113,3 (-2,8%/-0,7%). Gold at 1589 after 1640 (-3,1%). Copper at 366 from 374 (-2,1%) . CRB closes 293,1 from 298,1 (-1,7%). Gold waiting for QE and inflation. Copper waiting for Chinese growth.

EUR 1,294 after 1,310 last Friday

Next week:
Ascension Day on Thu in most of Cont Europe, which will probably be bridged by numerous players. Hence a shortened week with quite some heavy auction supply until Wednesday. Spain a little alone with its auction on Thu. French BTAN auction same day as German 10s on Wed.
Again rather light on hard data, although GDP reading s across Europe will probably revive growth versus austerity discussions.

Germany: Tue GDP +0.1% QoQ sa and especially ZEW 40 fcst for current situation. Fri PPI
France: Tue CPI. Wed GDP 0.0% QoQ
EZ: EU commission growth forecast
Other EU: IT CPI on Mon & GDP Wed -0.7% QoQ and Ind orders Fri. SP GDP on Fri. Greek GDP on Tue
US: 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:
( Bonzo just ruled!!! And Jimmy still does!)

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