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 21 May 2012

21 May 2012 – "Money for Nothing " (Dire Straits, 1985)

21 May 2012 – "Money for Nothing " (Dire Straits, 1985)

Despite the weak US close, weighted down by the lukewarm Facebook IPO (Close on IPO price) (Needless to say that I did NOT wear a hoodie this weekend, nor flip-flops...) and the lack of notable positives coming out of the G8 session, Asia closed slightly positive.
The European open, a little wobbly in pre-open equity futures, was then on the positive side, too.

Friday evening news of Spain’s 2011 deficit revised upwards to 8.9% (from 8.5%), mainly on the back of regional debt (Yes, there it is again that contingent liability to will keep on weighting down Spain) and the LCH margin hike on Spanish debt (expected to pop up at some time) have been taken rather bravely by the masses. Interesting to note that one of the first Hollande proposals in a wider international circle was to seemingly push for Spain’s banks to be recapitalized. As Bunds opened the day on the slightly heavy side, Spain just tagged along with most spreads about unchanged. Italian BTPs sticking out on the positive side. For once, credit taking a breather from the widening and a tick tighter. Commodities about where we left on Friday evening.

Light data flow this week, be it in Europe or in the US, so the focus will remain on Greece (latest polls are split between the pro- and anti-bailout supporters) and certainly on Spain. While everyone mulls support for Greece to remain within the eurozone (at what price and supported by whom?), Spain keep struggling with negative data and negative news. Sentiment here can shift rapidly. Infra / “Eurobonds” project pitched during the G8 with everyone agreeing that, yes, Surprise!, growth is certainly something to aim for.
EZ construction output was down solely 3.8% YoY after -12.9% in Feb; however that was revised to -16.3%. Still, on a MoM basis, there is a rebound from the lows. Dutch housing trailing lower.

Government bill day out of Germany, France and the Netherlands. EUR 3bn German 12m at 0.026%. Netherlands EUR 1.2bn 3m at 0.014% and EUR 1.1bn 6m at 0.025%. France closed the ball with EUR 4.2bn 3m at 0.07%, EUR 2.2bn 6m at 0.10% and EUR 2bn 12m at 0.17%. All issues a bit lower than mid last month.
Basically very cheap money... Money for nothing and the chicks for free...
Belgian auction in 5s, 10s and 15s raising EUR 510m 5s at 2.38% (after 2.62% in Feb) , EUR 1bn 10s at 3.45% (after 3.74% in Feb) and EUR 1bn 15 YRS at 3.64% in stable bid to covers (except for 2025s, which were slightly less bid). Total of EUR 2.55bn in the middle of the targeted EUR 2 to 3bn range.

By the end of the morning, markets had reverted somewhat with Spain trailing a little wider and BTPs giving back some their gains. EU and Eurostat to pay a visit to Madrid on that data revision. Surprised the markets didn’t react more. Data revision, especially to worst than already bad data, has a Greek flavour to it. Players probably blasé. Then again, as previously stated in this wrap (16 May on periphery haircuts and 17 May on regions), Spain’s contingent liabilities (assumed or not) are no secret either, although not widely talked about.
Markets reverted to slightly negative on equities and Bunds unchanged by mid afternoon and then floored by US equities opening slightly positive, too.

US Treasuries probably held back this week on upcoming auctions (USD 35bn 2s tomorrow, USD 35bn 5s on Wed, USD 29bn 7s on Thu). So under-performance will not necessary mean that the market has shifted RISK ON.

The ECB SMP outstanding remained, unsurprisingly, about unchanged at EUR 212bn, as EUR 2bn were redeemed. As a reminder the last major additions ended in Dec last year.

Nothing in terms of EUR new issue supply. IADB following other SSA names in 3 YRS dollars as flight to quality shelter. Nothing in EUR. Need to have markets settle somewhat before anyone will venture out. EFSF 3 YRS syndicated EUR deal is rumoured.

Risk appetite finally cooled off again with Tsipras game of chicken statements (bail-out not sustainable, but Grexit painful for Europe). To round up soft sentiment, FB down 10% at open.

Greek bonds guestimates: 2023s probably 0.75% tighter at 28.75% from 29.50% and 2042s down to 22% from 22.25%. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,44% (+2); Finland 1,87% (+1); Luxembourg 1,92% (+3); Swaps 1,93% (+2); Netherlands 1,97% (+2); Austria 2,58% (+0); EIB 2,69% (+5); France 2,83% (-1); EFSF 2,84% (+3); Belgium 3,29% (-2); Italy 5,76% (-1); Spain 6,24% (+1).

10 YRS Spreads: Finland 43bp (0); Luxembourg 48bp (+1); Swaps 49bp (+0); Netherlands 55bp (+1); Austria 114bp (-1); EIB 125bp (+4); France 139bp (-3); EFSF 140bp (+2); Belgium 185bp (-3); Italy 432bp (-3); Spain 480bp (-1).

EUR swap curve 2-5 YRS 38,4bp (+1,8); 5-10 YRS 61,3bp (+0,8) 10-30 YRS 21,4bp (-0,8).
2 YRS German BKOs closed 0,04% (-1) and 5 YRS OBLs 0,50% (+1).

Main at 181 from 181 (unch); Financials at 304 after 306 (-0,9%). SovX at 316 from 311. Cross at 748 from 750.

Stoxx Futures at 2135 / +0,5% (from 2124) with S&P minis at 1294 (-0,7% from 1304, at European close).
VIX index at 25,1 after 22,3 yesterday same time.

Oil 91,6/107,8 (WTI/Brent) from 92,2/107,3 (-0,6%/+0,4%). Gold at 1589 after 1596 (-0,4%). Copper at 348 from 350 (-0,5%). CRB closes 290,4 from 289,4 (+0,4%).
Baltic Dry unchanged from Friday’s 1141. Feels like the pretty much non-stop rally from early Feb’s lows has stalled, having 1165 early May.

EUR 1,274 after 1,273
ECB deposits at EUR 790bn after EUR 762bn.
All levels European COB 17:30 CET

This week:
Very light in terms of hard data or auctions. Getting numbers starting Thu and not that many either.
Netherlands selling EUR 3.5bn 3 YRS tomorrow. Spain in EUR 2.5bn 3 and 6m bills sales. EFSF EUR 1.5bn 6m bills. EFSF expected to syndicate some 3 YRS this week.

Germany: Data flow on Thu with GDP 0.5% QoQ sa, PMIs and IFO. Con conf on Fri.
France: Tue production outlook, Biz confidence and PMI. Cons conf Fri.
EZ May consumer confidence expected at -20.5 after 19.9 on Tue. EZ PMI Thu.  OECD outlook on Tuesday.
Other EZ: IT cons conf Wed, Fri retail sales and biz conf. SP mortgages on Thu, PPI Fri. GR current account Wed
US Tue Home Sales 4.6m after 4.5m, Wed House prices & home sales, Thu durable goods & claims, Fri Michigan conf
Asia: CH Flash PMI Wed Japan not much.

Click link on title or below for today’s musical support:
(Amzing version: Knopfler, Sting, Clapton, Phil Collins... Quite a line up! You gotta love that battered Les Paul of Knopfler.)

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