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

Monday 14 May 2012

14 May 2012 – "Holy Diver" (Dio, 1983)

14 May 2012 – "Holy Diver" (Dio, 1983)

Weekend reading full of reports about the life of cetaceans…Fall-out probably on increased Volker rules – and on increased corporate spreads, at least in the US.
Pretty much as expected, given last week’s figures, China cut RRR by 50bp (to 20%. So it’s not like the Chinese economy will be hit with a cash deluge). Asian session actually rather balanced, if not positive. Those in the red are the markets that were not yet closed, when Europe started.

Pre-opening futures down by 1%, and then adding a further 1% in the following hour and tanking further. Greek woes. German NRW election results, which might put Merkel in an uneasier seat to govern. Austerity or not, one certainly doesn’t need inner-German dissent on the matter, as the European tensions are already running high enough.

Then equities had behaved bizarrely optimistic lately against a background of softer US equities and very heavy European credit indices. So that feels about sane.

No European good figures to change the course of things. Note that Italian CPI is still running at the course of 3.7% YoY, which won’t help Italian consumers. EZ Industrial Production diving to -2.2% YoY (after prior revised to -1.5% and a -1.4% forecast).

Spanish bill auction yielded EUR 2.2bn 12m at 2.99% and EUR 700m 18m at 3.30%. Maximum targeted amount had been EUR 3bn, so the usual “they couldn’t raise in full” attitude came through again. Another 20bp or so compared to last month (2.62% and 3.11% respectively) and lower bid to cover ratios. Aye aye aye…

Italy then pacifying things the mood a little with EUR 3.5bn 3 YRS sold at 3.91% (after 3.89% last month) and hitting the targeted EUR 3.5bn, although the BC of 1.5, even if better than last time, doesn’t point to a huge crow pleaser. Rounded up things with EUR 651m 10s at 5.66% and EUR 542m 2020 at 5.33%. BTP yields down over 6bp after auction results publication.
Finland discreetly raised EUR 1bn of 5 YRS via one of its rare auction. Yield of 0.872% with a 2.2 B/C.
To round off sales, France issued in the afternoon about EUR 4bn 3m bills at 0.07%, EUR 1.8bn 6m at 0.11% and EUR 1.5bn 12m at 0.19%. More or less unchanged from last sales. EFSF to auction EUR 1bn of its 5 YRS tomorrow.

New issues restricted to Land NRW (the one that voted yesterday) (Germany’s biggest) with EUR 500m 7 YRS raised at MS +15. Had last issued 6 YRS at +12 end of Mach.

Grexit? Officials definitively talk about the leaving the Club in more and more open manner, be it in Germany (Duh!) or elsewhere. Not sure one really wants to look forward to that (even with further EU support) as reverting to a new currency would entail a stealth decision and implementation, closing banks and ATMs, locking up the country for a couple of days to avoid capital flight (or what’s still left of it) and all sorts of politically and civically doubtful things.

Bund yields down to 1.45% and Spanish yields up one way, adding a staggering 25 bp to 10s. Italy hit, too, same punishment. Although here, auction supply and pre-hedging would explain some of the movement. Contagion is in the room. Getting back to tipping point levels with BTPs trading 5.75% and BONOs 6.25% by late morning.Credit heavy, heavy, heavy… Whale-thing won’t help. Commodities hit in similar manner.
European equities down over 2.5% during the lunch period, before recovering a quarter ahead of US opening (no figures, though). Hovering about 1% above the late lows. Very near Fibonacci retracements of the Sep / Mar move (2192 €Stoxx, 3040 CAC). DAX running a different course. Southern Europe already outside competition and going for no-limit free diving. End of afternoon slightly less distressed, as most ugly news had already been digested.

Afternoon session not really getting off the sea floor. Spain back over 6.25%. Italy 20 bp wider, but under the wides of the morning; France and Belgium as well trading a bit wider, not joining in the Core EZ plus exercise of testing of new lows. German 2 YRS now trading a mere 0.06%.

Credit off highs, but barely so. Main looks technically shaky on the 170-172 retracement. Likewise for financials around 275-280. Breaching these would somehow mean returning to last year / years highs: 220 for Main & 365 for financials. Picture is actually similar for Cross, which has broken the 685-90 area.

Greek bonds quoted ever lower and 2 points lower (in price). 2023s now probably worth 27.5% and 21.5%, up from Friday’s 24.5% and 18.75% (in yield). Quotes were 20.25% and 16.75% before the elections 10 days ago.
Seemingly no decision taken at this stage on the EUR 450m non-PSIed FRNs due tomorrow. Chewing on the docs to see how many days grace period can that be dragged out before calling it a default. Looks like a small month, if I’m not mistaken ( 7. EVENTS OF DEFAULT If any of the following events (each an Event of Default) occurs: (a) the Republic defaults in any payment of interest in respect of any of the Notes or Coupons and such default is not cured by payment thereof within 30 days from the due date for such payment; or(…)).
Well, as it happens, Greece is planning to raise EUR 1bn of 3m bills tomorrow.

Closing levels:
10 YRS Yields: Germany 1,45% (-6); Luxembourg 1,91% (-6); Finland 1,92% (-5); Swaps 1,96% (-6); Netherlands 1,96% (-6); Austria 2,58% (-1); EIB 2,61% (-6); France 2,82% (+2); EFSF 2,81% (-4); Belgium 3,20% (+5); Italy 5,69% (+19); Spain 6,20% (+21).

10 YRS Spreads: Luxembourg 46bp (+0); Finland 46bp (+1); Swaps 51bp (unch); Netherlands 51bp (unch); Austria 113bp (+5); EIB 116bp (unch); France 137bp (+8); EFSF 136bp (+2); Belgium 175bp (+11); Italy 424bp (+25); Spain 475bp (+27).
Today’s candidates for diving below the 2% mark in 10s are the swap market as well as the Netherlands. France not profiting…

EUR swap curve 2-5 YRS 35,4bp (-3,4); 5-10 YRS 61,2bp (-3,8) 10-30 YRS 23,2bp (-0,9).

2 YRS German BKOs closed 0,06% (-2) and 5 YRS OBLs 0,50% (-5). Say didn’t we trade new lows? Again?

Main at 169 from 158 (6,7% wider); Financials at 282 after 265 (6,4% wider). SovX at 294 from 285. Cross 20 wider at 717 from 687.

Stoxx Futures at 2183 / -2,2% (from 2232) with the S&P at 1338 (-1,8% from 1362, at European close).
VIX index at 21,4 after 18,9 yesterday same time. Oops.

EUR 1,285 after 1,294
ECB deposits at EUR 763bn after EUR 703bn. Quite a surge compared to the last beginnings of reserve maintenance period. It’s not like people are serene out there.

Oil 94,3/110,8 (WTI/Brent) from 96,7/112,5 (-2,5%/-1,5%). Gold at 1561 after 1589 (-1,8%). Copper at 356 from 366 (-2,7%). CRB closes 288,5 from 293,1 (-1,5%). Commodities largely hit. Weaker EUR. China. You name it. (Baltic Dry?)
Another fall in the Baltic Dry index taking it back to 1132 from 1138 on Friday. Can’t call it a dive at this stage, but it’s the coal mine canary of world trade.
All levels European COB 17:30 CET

This week:

As a reminder, Thursday will be Ascension Day in most of Continental Europe and will probably be bridged into an extended weekend by numerous players. Hence a shortened week with quite some heavy auction supply until Wednesday. Spain a little alone with its EUR 2.5bn auction on Thu. French BTAN auction brought forward by one day and together with 10s on Wed.in rather light on hard data, although GDP readings across Europe will probably revive growth versus austerity discussions starting tomorrow. Happens to be the official start of the Hollande government: PM nomination and then trip to Berlin. Merkellande, here it comes...

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: Tue Q1 GDP YOY fcst -0.2%  Wed CPI 2.6% YoY
Other EU: IT CPI on Mon & GDP Wed -0.7% QoQ and Ind orders Fri. SP GDP on Fri. Greek GDP on Tue
US: Tue CPI ex YoY 2.3% fcst. Retail Sales 0.1% after 0.8%, Wed Housing Starts, Industrial Prod, Thu claims & Leading Ind. Fri nada.
Asia: China light. Japan Wed Machine Orders +4.4% YoY (after +8.9%). Q1 GDP QoQ +0.9% (after -0.2%). Indu Pro

Click link on title or below for today’s musical support:
(Yeah. Easy, I know. Sticking to the underwater theme… PADI Divemasters do that...)

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