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

Thursday 17 May 2012

17 May 2012 – "Rock Me Baby " (The Rolling Stones with AC/DC, 2003)

17 May 2012 – "Rock Me Baby " (The Rolling Stones with AC/DC, 2003)

Cautious open after an eventually weak US open, but with some stimulus hopes read between the lines of the FED minutes. Likewise, spot the odd ones out, overnight news of better than expected Japanese (and Singaporean) Q1 GDP readings of 1% QoQ, respectively x, gave some comfort. Still, having tried a 0.5% upside in pre-open, a 0.5% slide seemed eventually more appropriate given the low hanging clouds of Grexit. Remember that Europe is half-closed anyway on Ascension day with a bridge to the weekend looming just thereafter (despite the poor weather outlook).
Hence not much at open. Bonds about put, with maybe Spain a touch weaker ahead of the auction. Brent soft-ish. EUR still trading on the low of the 27 handle. Frankfurt rather blockuppied, if I’m not mistaken.

No major data flow to speak of. Spanish GDP unsurprisingly confirmed into recession at -0.3 QoQ / -0.4% YoY, after prior -0.3% QoQ.

Government bond supply with Spain alone on the floor. Eventually the EUR 2.5bn were about covered, in healthy BC ratios, albeit at a steep price: a short combined EUR 1.4bn in 3 YRS at 4.38% and 4.88% (after respectively 2.89% in Apr and 4.04% early May) as well as EUR 1.1bn in 5s at 5.11% (after 3.37% in Mar). 3 YRS at that level sets the Spanish market seriously back to pre LTRO announcement levels with the high paid at 5.19% ion December 2011.
Then again, cover was good (given the level), but the costs are growing. Eventually, the Spanish Tesoro is advancing fast in its funding programme, but that would be solely its own.
Contingent needs for the government-guaranteed entities like ICO, the FROB and FADE, who all haven’t issued for a while, might at some stage pile up, as is the one of Spanish regions.

Whatever, so no surprise here, but the confirmation of the reality has sent RISK spinning again. By end of lunchtime, Bunds were down 5bp to a new all-time low (Yes, another one) of 1.42%, while the periphery was 7-10 wider with Italy nearing again symbolical levels of 6% (5.90%) again and Spain 6.50% (at 6.35%). Core “light” acting as pivot with Austria and France, the EFSF and the EIB treading water. 2 YRS swaps back through 2%.
Equities down 1.5%, flirting again with this week’s lows.
Further, contingent, stress in banks: Catacean losses; rumours that after Italy’s 26; Moody’s would go down on over 20 Spanish banks; cash retrievals in Greece and at recently nationalized Bankia. Adding 10 ticks to Financials, just shy of 300 and 5 to Main. EUR cutting through 1.27 over noon.

No major reaction to the French government nominations with Moscovici, a known Euro-phile, running Finances (Although, he did repeat in one of his first interviews that France wouldn’t sign the compact as is). Fabius nomination might be a bit touchier for some, as former EU Treaty opponent, and certainly less welcome in some regions of the Pacific. But realpolitic will be realpolitic. New PM hailed for speaking German.

Afternoon session started with US claims at 370k (fcst 365k after 367k, revised upwards). Not good, but given tested levels, not bad enough to push out risk further. I did help the EUR to spike back over 1.27, though. A tame opening in US futures, then further a bit of recovery with the periphery actually paring losses, but with the Core keeping the new all-tile lows. Odd... Leading indicators unexpectedly at -0.1% (fcst +0.1% after +0.3%), but here again, tame disappointment. Closing off, but still quite near lows.

Obviously, Armageddon was not due today. Then again, European markets were half staffed at best... Then again, negative close on 2-month low. Credit really heavy with especially financials past 300.

Greek bonds guestimates: 2023s probably unchanged at 29.50% and 2042s 22.25%, from Tuesday’s 29.0% and 23.25% (in yield), so a bit twisty. Talking about low double digits in price terms (14 and 12.50 cts on the EUR).
Quotes were 20.25% and 16.75% before the elections 10 days ago.

Closing levels:
10 YRS Yields: Germany 1,43% (-4); Luxembourg 1,90% (-3); Finland 1,87% (-4); Swaps 1,97% (-2); Netherlands 1,92% (-5); Austria 2,58% (-2); EIB 2,65% (0); France 2,86% (-2); EFSF 2,82% (-2); Belgium 3,30% (+6); Italy 5,81% (-1); Spain 6,29% (+2).

10 YRS Spreads: Luxembourg 48bp (+1); Finland 45bp (+0); Swaps 55bp (+3); Netherlands 50bp (0); Austria 116bp (+2); EIB 122bp (+4); France 144bp (+3); EFSF 139bp (+3); Belgium 188bp (+11); Italy 438bp (+4); Spain 486bp (+6).

EUR swap curve 2-5 YRS 37bp (-1,8); 5-10 YRS 61bp (-1,2) 10-30 YRS 23,6bp (+0,5).
2 YRS German BKOs closed 0,05% (-2) and 5 YRS OBLs 0,48% (-4).

Main at 181 from 177 (2,1%); Financials at 303 after 289 (5,0%). SovX at 308 from 302. Cross at 751 from 737.

Stoxx Futures at 2129 / -1,2% (from 2155) with the S&P at 1325 (-0,9% from 1337, at European close).
VIX index at 22,3 after 21,2 yesterday same time.

Oil 93,1/109,5 (WTI/Brent) from 93,7/111,7 (-0,6%/-2,0%). Gold at 1550 after 1543 (+0,4%). Copper at 352 from 350 (+0,5%). CRB closes 289,4 from 288,9 (+0,1%).
Baltic Dry was fixed unchanged at 1137.
EUR 1,270 after 1,272

ECB deposits down EUR 3bn to EUR 785bn.
All levels European COB 17:30 CET

German PPI fcst at 2.5% after 3.3% YoY / +0.3% MoM. IT Indu Orders at +1% MoM fcst after -2.5% (Might be too high, though). That’s all folks, not even US figures, outside some possible prior data revision. Not even an auction...

Click link on title or below for today’s musical support:
(Both Young Brothers among the most under-rated Blues players around, especially Malcom. Keith is Keith and what would he be without Ronnie??? But who’s that guy, who keeps jumping around???)

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