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 22 May 2012

22 May 2012 – " Back in the Saddle " (Aerosmith, 1976)

22 May 2012 – " Back in the Saddle " (Aerosmith, 1976)

Finally a supportive RISK ON day start on the back of US equities ignoring FB woes (-11% close) and closing up 1 to over 2% for the Nasdaq, which similar components had been dragged lower on Friday. Asia equally strong and closing in 1%+ mode. China infrastructure stimulus rumours / hopes.
European futures all continuing on their evening higher close to start the day. EUR crawling back over 1.28 in Asian trading.
Mood boosted by lack of mayhem and renewed optimism that EU head-banging might yield a solution, with the “Eurobonds” / structural bonds discussion getting traction, although very much against German statements. Can’t find any more specific reason, outside the fact that the correction of the last days might be seen as bottom-fishing opportunity. Italy and Spain very strong in tandem at open, tightening back over 15 bp ahead of the Spanish bill auction. Hard Core EZ 3 to 5 bp softer, swaps unchanged and Soft Core EZ 3 bp tighter.
Equally strong credit performance, for once, finally, with especially banks down over 10 bp (3.5%), and back well within 300, as are Main and XO (3.5%). Banks profiting from pitches of European-wide deposit guarantees.

Very vocal OECD on downside risks in and because of Europe. Negative on the periphery outlook. Pitches lower ECB rates, eurobonds, eurobonds for bank recaps, support for Greece. (link) Hmm... Weren’t these already Obama / Geithner demands? Hollande’s play-book? In bizarre turn-around, the IMF pushes for more stimulus in the UK.
Well, anyhow: Tomorrow’s informal EU meeting (stress that is “informal”) will give everyone a chance to add a stone to the European disharmony. Knowing that eurobonds will NOT be a subject, for the Germany’s spokesman, and that the meeting will not solely be on Greece. So what will there be to bicker about??? Growth?

Otherwise, no strong data flow. Noting Dutch consumer confidence lower again. Haven’t heard back for a while what the Netherlands are up to with regards to deficit and recession. Erstwhile soft patch totally over and Dutch 10s trade back in line with Finland (interpolated) and Luxembourg (mid to high 40s over Bunds). Wouldn’t be surprised, if the subject came on the table at some time (Normally, as things are when nobody needs it...).

In the meantime, EUR 3bn Dutch 3 YRS easily done and dusted at 0.46% (after mid March 0.62%), compares to German 3 YRS trading 0.17%.
Spanish 3 and 6m bills finally raising EUR 2.53bn and hailed as having raised MORE than intended (EUR 2.5bn were targeted), which given the maturities and amounts is as ridiculous than the scaremonger, who cry out when the result is a hundred million below target. Bills are just bills… Nevertheless, one will note that once more the price tag has increased to 0.85% (from 0.63%) for EUR 1.5bn 3m and to 1.74% (against 1.58%) for EUR 1bn 6m bills.
Finally, the EFSF raised short of EUR 1.5bn of 6m bills at 0.20% (after 0.25% last month).
Talking of government supply, we duly note that the new German 2 YRS, while not intended as a zero-coupon per se, will carry a 0% coupon…So you’ll get paid ZERO for holding that bond every 13th of June… As fate throws the dice, the 13th of June 2014 happens to be a Friday. This is screaming “Bad karma!”… Don’t buy! Quoted 0.07% in grey market.

New Issues jumping on the positive bandwagon with initially KfW offering EUR 3 YRS, BHH closing a EUR 1bn 5 YRS at MS +9 Pfandbrief sales and Ph. Morris filling the spot for corporates with a 2-tranche deal, totalling EUR 1.25bn. As markets were hanging in there, French SME bank OSEO and GDF joined the party for respectively EUR 900m 5 YRS at MS+64 and respectively EUR 3bn, for a hefty triple-trancher in 3s, 6s and 10s. Getting very much US-style multi-tranche offerings out there. Then again, windows have become small lately, you’d rather fill them.
Note that most issuers remain very well noted. So maybe there’s a little RISK ON mood, but very much controlled at this stage.

By mid morning, things got rapidly static with not much really moving anywhere until midday. Japan’s downgrade to A+ with negative outlook (from AA LT foreign) was shrugged off in a blip and didn’t really damp the mood much. Had a 1% surge during lunch on Germany signalling “more agreement then conflict with France” and first American reactions. Bunds a bit softer still and the Periphery adding further 5 bp in performance. Greek EUR 18bn bank recap on track for Friday. Waiting for US open and again drifting sideways ahead of US figures. Uneven open a bit of a short term dampener. US existing home sales figures and revisions in line, so non-event.
EZ consumer confidence at -19.3 beating -20.5 forecast after -19.9. Not huge number, but good enough to maintain the mood.
Strong credit outperformance (4-5% tightening). A 15 bp swing on financials looks big, but has been more frequent than one would think over the last year, either way.

Back in the Saddle? Positive close in any case. Expectations might be a bit overblown, but late weakness was maybe overdone – at this stage. Doubtful the EU summit pulls a rabbit out of the hat we wouldn’t have seen before. Spain and Italy still above lofty 6% and 5.50%. EUR dragging at 1.275.

Greek twist and turns with Tsipras now pitching his stance as EUR guardianship. Keeping Greece in the EUR and softening Troika pressure can realistically only mean some form of additional debt relief.
Greek bonds guestimates: 2023s probably back 0.75% wider to 29.50% and 2042s hurting at 23.50%. Hitting all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,47% (+4); Finland 1,89% (+3); Luxembourg 1,93% (+1); Swaps 1,94% (+2); Netherlands 1,97% (0); Austria 2,54% (-5); EIB 2,68% (-1); France 2,78% (-6); EFSF 2,84% (+0); Belgium 3,24% (-5); Italy 5,57% (-21); Spain 6,06% (-19).

10 YRS Spreads: Finland 42bp (-2); Luxembourg 46bp (-4); Swaps 47bp (-3); Netherlands 50bp (-5); Austria 107bp (-9); EIB 121bp (-5); France 131bp (-11); EFSF 136bp (-4); Belgium 176bp (-9); Italy 409bp (-25); Spain 458bp (-24).
Ok, easy: Periphery good, Bunds hit, Soft Core EZ good...

EUR swap curve 2-5 YRS 39,3bp (+1,4); 5-10 YRS 62,1bp (+1,1) 10-30 YRS 21,3bp (+0,5).
2 YRS German BKOs closed 0,06% (+1) and 5 YRS OBLs 0,52% (+3). New 2 YRS ZERO BKOs at 0.07%.

Main at 171 from 180 (tighter by 5,4%); Financials at 280 after 299 (tighter 6,4%). SovX at 311 from 317. Cross at 706 from 744.

Stoxx Futures at 2180 / +1,7% (from 2143) with S&P minis at 1326 (+1,5% from 1306, at European close).
VIX index at 20,4 after 23,0 yesterday same time. Deflating...

Oil 92,5/108,9 (WTI/Brent) from 92,2/108,3 (+0,4%/+0,5%). Gold at 1588 after 1593 (-0,3%). Copper at 350 from 350 (+0,1%). CRB closes 289,4 from 289,9 (-0,2%).
Baltic Dry dropping 27 to 1127 from Friday’s and Monday’s 1141 fixing. Oops…

EUR 1,275 from 1,278
ECB deposits back to EUR 768bn after yesterday’s surge to EUR 790bn.
All levels European COB 17:30 CET

Rest of the week:
Very light in terms of hard data or auctions. Getting numbers starting Thu and not that many either.
German EUR 5bn 2-year auction tomorrow.
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: Thu production outlook, Biz confidence and PMI. Cons conf Fri.
Other EZ: IT cons conf Wed, Fri retail sales and biz conf. SP mortgages on Thu, PPI Fri. GR current account Wed
US 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:
(Talking about major sustainability here. Rockers DO outlast them all...)

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