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 15 May 2012

15 May 2012 – "Greased Lightnin’ " (John Travolta, 1978)

15 May 2012 – "Greased Lightnin’ " (John Travolta, 1978)

US equity close off intra-day highs and in the red, following the European lead (although to a lesser extent). Asia actually quite resilient in that context with a mixed to flat close (helicopter view), in any case better on a 2-day basis.
Seemingly the US sentiment was seemingly more affected by Moody’s downgrade of 26 Italian banks than Europe.

Rather positive European open backed by the first set of GDP figures, although that petered out somewhat as more were published. France opened the dance with an expected flat reading (although prior data was revised down from +0.2% to +0.1%), hence a sluggish stand-still. Germany then with a higher than expected 0.5% gain in GDP (QoQ, sa) (forecast had been +0.1% after -0.2%). French CPI a tick lighter at 2.4% Austrian GDP a tick up, but the Netherlands clocking in a third quarter of negative growth at -0.2%. Italy heavy and a tick softer than expected at -0.8% (after -0.7%). That’s a -1.3% YoY and as well a third quarter of contraction, so we’re slipping into a real recession here. Greek GDP (YoY) at -6.2% (after -7.5%), that’s something like the 13th negative reading in a row; bare an uptick in Q1/2010. Hard.
Euro-zone GDP reading at flat, both QoQ and YoY, better than the expected -0.2%.
Finally, the German ZEW figures offered a mixed reading with economic sentiment at 10.8 against a forecasted 19 and prior 23.4, somehow against the trend that German GDP figures were drawing, but with current conditions at 44.1 after 40.7 and a forecast of 39. Then again last economic sentiment readings were a 2-year high, oddly against the prevailing European mood (European ZEW at -2.4 after 13.1). Sector reading shows that basically only retailing has improved markedly (given wage increases, my guess). Finance unsurprisingly bleak. Cars, electronics, machinery, construction all less upbeat. Back to Earth.

Risk appetite then slipping again a little and markets back to closing levels throughout most asset classes. Govies overall slightly heavy from yesterday’s record lows for the Core with the periphery gently back to tickle yesterday’s highs (5.75% in Italian 10s and 6.25% for Spain). Credit indices taking a breather for last days’ depression.

Greece raised EUR 1.3bn 3m bills at 4.34% after 4.2% in April.  Need to roll EUR 1.6bn of 3m bills issued in Feb. Targeted were EUR 1bn, but then again, Greece confirmed it would indeed redeem today’s hold-out issue with EUR 436m outstanding. Plus the EFSF had sent over EUR 4.2bn last week. Still, that preferential treatment of the holders of this very issue will certainly have lots of people mulling over Greek debt holder treatment, the whole EUR 100bn PSI exercise and will certainly keep any further hold-outs from changing their stance.
Seeing next redemptions some EUR 3.3bn to the ECB and EIB (non-PSIed) and then EUR 9.6bn of bills (including today’s) until mid-August. “Real” PSI held-out bonds maturing seem thus to be limited to some Hellenic Railways bonds due in Sep and Dec.

Belgium raised a total of EUR 3.4bn in 3 and 12m bills at 0.20% and 0.63% respectively.
Taking of the EFSF, it raised EUR 960m of its outstanding 5 YRS May 2017 at 1.83% via auction.

New issues restricted to yet another EIB (sizeable) EUR 1bn increase of a 15 YRS benchmark at MS+84 and we had a pre-marketed, unrated Bureau Veritas raising at the wider end of EUR 300 to 500m of 5 YRS at MS +250.
Had flight to quality USD offerings via Denmark’s USD 1.75bn 3 YRS at MS -9 and an EBRD 5 YRS increase.

Mixed serving of US figures, mostly in line with expectations: CPI 2.3% (cum and ex), Retail sales a mere +0.1% (after 0.8%) confirming some slow down in things. Empire State manufacturing higher than expected, but it’s a noisy figure.
Final set of figures for the day via US biz inventories at 0.3% after 0.6% (fcst 0.4%) and NAHB Housing index higher than expected at 29 (fcst 26) after prior 24 (revised from 25). Mixed bag. Not enough to propel American risk appetite higher at open.

Afternoon session marked by the announcement that Greece was heading to new elections after all, triggering an immediate 2% equity slide / 5 bp uptick in Main. Cemented as well a 10 bp widening of Italy and Spain, hitting past 5.80% and 6.30% respectively.
Then again? Where’s the news here and markets crawled back from their lows…
And then slumped back to close near the lows. Credit persistently weak, after the early morning spurt.
Lightening is never said to strike over and over at the same place, but Greece does manage to.

Interesting lack of reaction of German and Core EZ bonds. Thin air up there. Only had a 50 cts uptick on the Greek news. Didn’t even manage to hit yesterday’s all-time high. Maybe next time… Then again: EUR 5bn of 10s on the block tomorrow for Germany. Chances are that, as now usual, the BuBa will have to pick up some slack/ Chances are, it will manage to get rid of them in the next panic attack…Having as well EUR 7 to 8bn 2014, 2015, 2016 and 2017 French bonds and EUR 800m to EUR 1.2bn French ILB. Rare gathering of auctions, as the French one was brought forward from Thursday (Ascension Day) to Wednesday. Will thus be the new French government’s opening encounter with “cet adversaire, c'est le monde de la finance” (sic). Then again, it should fare ok, as French auctions tend to fare ok.

Greek bonds guestimated wider again: 2023s now probably worth 29.0% and 2042s 23.25%, up from yesterday’s 27.5% and 21.5% (in yield). Talking about low double digits in price terms (14.5cts and 12 cts on the EUR). Quotes were 20.25% and 16.75% before the elections 10 days ago.

Closing levels:
10 YRS Yields: Germany 1,46% (unch); Luxembourg 1,91% (unch); Finland 1,92% (unch); Swaps 1,96% (+1); Netherlands 1,97% (unch); Austria 2,59% (+1); EIB 2,62% (+1); France 2,89% (+7); EFSF 2,81% (unch); Belgium 3,25% (+5); Italy 5,86% (+17); Spain 6,33% (+13).

10 YRS Spreads: Luxembourg 46bp (unch); Finland 46bp (-1); Swaps 51bp (unch); Netherlands 51bp (unch); Austria 114bp (+1); EIB 117bp (+1); France 143bp (+7); EFSF 136bp (unch); Belgium 179bp (+4); Italy 440bp (+17); Spain 487bp (+13).
Spain closing at the weakest since end of November. LTRO all faded out on the long end. Likewise, Italy dragged back to early Feb levels. Tipping point level discussions to flare soon.
France heavy again with an auction looming tomorrow. Spread widens bit by bit by bit... Like I said, note that Germany and the Core are struggling to push lower for the moment.

EUR swap curve 2-5 YRS 35,7bp (+0,2); 5-10 YRS 61,6bp (+0,5) 10-30 YRS 22,8bp (-0,4).
2 YRS German BKOs closed 0,06% (unch) and 5 YRS OBLs 0,50% (+1).

Main at 175 from 169 (3,5% softer); Financials at 289 after 282 (2,7% softer). SovX at 298 from 294. Cross at 738 from 717.

Stoxx Futures at 2154 / -1,3% (from 2183) with the S&P at 1340 (+0,1% from 1338, at European close).
VIX index at 21,2 after 21,4 yesterday same time.

Oil 94,6/111,9 (WTI/Brent) from 94,3/110,8 (+0,2%/+1,0%). Gold at 1554 after 1561 (-0,4%). Copper at 352 from 356 (-1,1%). CRB closes 288,5 from 288,5 (0,0%).
Baltic Dry index still in reverse gear at 1130 from 1132.

EUR 1,276 after 1,285
ECB deposits at EUR 788bn after EUR 763bn.
All levels European COB 17:30 CET

Rest of 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.

Germany: Fri PPI
EZ: Wed CPI 2.6% YoY
Other EU: Ind orders Fri. SP GDP on Fri.
US: 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:
(No water today...)

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