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

Wednesday 23 May 2012

23 May 2012 – " Paranoimia " (Art of Noise feat. Max Headroom, 1986)

23 May 2012 – " Paranoimia " (Art of Noise feat. Max Headroom, 1986)


Aaaand…. Reverse, all! Whether or not former Greek PM explicitly said that Grexit preparations were ongoing, as soon as this went over the tickers, US equities, which hadn’t had time to fully bask in yesterday’s RISK ON mood gave back their gains, traded off 1% and rebounded in the closing minutes to end about unchanged to slightly negative. The EUR, which was already trading on the weak side, immediately traded off 50 pips, trailing lower throughout the Asian session, before rebounding off its 1.265 area support. Asian session pretty muck giving back all of Tuesday’s gains.
European session unsurprisingly opening down about -1.5%. Initial reaction on bonds was surprisingly tame with the Core initially opening a little tighter and the Periphery a bit wider, but neither too much, although Credit indices, which in turn had gone a little over the top yesterday, came in weaker than equities.
Italian consumer confidence lower than expected at 86.5, but the 89.5 forecast was beating prior data at 89 (revised 88.8), which seemed quite optimistic. Dutch consumer spending lower than expected, as well, in the long line of droopy Dutch data. Down 2.1%, after -1.5% (revised) YoY. Not much more on the data front. Japanese trade figures on the weak (Apr exports +7.9% YoY, after prior +5.9% and fcst over 11%. Imports likewise underachieving at +8%, after 10.6%). Hmmm… Baltic Dry???
Periphery and Credit drifting wider, tick by tick, as equities weakened further, as was the EUR, once broken the 1.265 support.

On today’s government sales menu the new 0% 13 Jun 2014 BKO. Of course, you want to own Germany; hence the good auction result (Record low at 0.07%, as yesterday’s close. +1.5bp spread to the outstanding reference. B/C1.7. EU 5bn issued, of which a small EUR 500m retained for market interventions. Last month auction level was 0.14 %.)
But a 0% coupon, not a zero discount note, redeeming on a Friday the 13th??? In the meantime, rest assured, the German debt agency has confirmed not planning on setting negative coupons. So there’s a floor to all things
Totally absurd discussion on Germany announcing not to issue negative coupons, as a) there's no practical way for clearing houses to get the negative coupon back from the bond holders and b) even if there was, Germany would run a credit risk on all bondholders. Unless deducting the negative coupon from the principal, in which case you run in other technical problems, there is no practical way to issue a negative coupon. You can auction at negative yields, though... 0% sold over par.
Question is how do you spell that out in Central Bank speak??? Must be something like “accommodative” - at least for Germany.
Which brings us back to the question of the currency union, its governance and rules… After dinner musings at tonight’s informal EU meeting, maybe.

Grexit back on everyone’s mind and spoiling the party for the rest of the day. Of course, reports now leak that task forces exist to cater for that possibility at the ECB and other national central banks. Normal, but adding to the stress.
It would be nice to avoid an exit, even Syriza says so. Sure. Postponing the pain or spread it out over time. However, let’s face it, unless the Greek debt burden was to be massively reduced once and for all (and thus indirectly footed by those European taxpayer that can still afford it, in the name of European solidarity), and the really needed reforms implemented already yesterday, there’s no way for Greece to gain back competitiveness for any future positive traction. Defaulting further and staying in the EUR is technically easier and less painful for all, but wouldn’t add devaluation to gain further traction. And, if defaulting, then for real and full. Contagion risk is, of course, huge. Spexit next, then?

New Issues getting done for German SSA names EEA and Land Lower Saxony. Commodity-name BHP Billiton managed to get EUR 1.25bn long 6 YRS and EUR 750m 12 YRS off the ground at MS +65 and +100 bp. That was the tight end of the initial talk, despite the gloomy environment for credit AND commodities.

Drifting ever lower in equities, somehow in straight line, with no further acceleration. Credit rapidly giving back yesterday’s gain. Bunds ever tighter. Periphery surprisingly resilient, as in just slightly wider, and with widening spreads, but not (yet) subject to negative acceleration. Obviously, hopes were still set for some EU summit goodies coming out overnight, hence capping the rise.
Temporary market support from Hollande voicing strong support for Greece and denying Greek contingency plans, while sources said the Eurogroup working group was pushing for preparation of such plans.
Respite just didn’t last. 10 YRS Bunds trading below 1.40% for the first time and 30 YRS below 2%. Likewise, periphery “stability” yielding to pressure and drifting wider.
US New Home sales and prior upside revision a bit of help, was the only lenient weak US open.
Market close very weak. Rebound short-lived and to no avail with the EUR trashed 90 pips from a 1.268 rebound through 1.26 (Aug 2010 levels). EUR/CHF stable.
All commodities getting beaten up, too. WTI flirting with the 90 level.
10 YRS periphery 10 to 15 softer and spreads to Germany up to 20 wider. To top it off, periphery curve flattening some 5 bps with Italian 5s now 5.00% and Spain at 5.50%. Credit and Financials trading like mattresses again, after the last 2 days optimistic tightening. Bunds closing near their all-time low at 1.39%. Quite stable spreads outside Belgium, Italy and Spain.

Greek bonds guestimates: 2023s 0.50% wider to 30.0% and 2042s at 24.0%. New all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:

10 YRS Yields: Germany 1,39% (-9); Finland 1,81% (-8); Luxembourg 1,84% (-9); Swaps 1,87% (-7); Netherlands 1,88% (-9); Austria 2,49% (-5); EIB 2,60% (-8); France 2,73% (-5); EFSF 2,76% (-8); Belgium 3,23% (-1); Italy 5,65% (+8); Spain 6,18% (+13).

10 YRS Spreads: Finland 42bp (+0); Luxembourg 45bp (0); Swaps 48bp (+1); Netherlands 51bp (+1); Austria 110bp (+3); EIB 122bp (+1); France 135bp (+4); EFSF 137bp (+1); Belgium 184bp (+8); Italy 426bp (+17); Spain 479bp (+21).

EUR swap curve 2-5 YRS 35,7bp (-3,6); 5-10 YRS 61bp (-1,1) 10-30 YRS 16,7bp (-4,6).
New 2 YRS German BKOs closed 0,05% (-2) and 5 YRS OBLs 0,45% (-7). Old 2 YRS at 0.03%.

Main at 180 from 171 (5,7% wider); Financials at 297 after 280 (6,0% wider). SovX at 315 from 311. Cross at 740 from 706.

Stoxx Futures at 2126 / -2,5% (from 2180) with S&P minis at 1297 (-2,1% from 1326, at European close).
VIX index at 24,3 after 20,4 yesterday same time. Reflating

Oil 90,5/106,3 (WTI/Brent) from 92,5/108,9 (-2,2%/-2,3%). Gold at 1540 after 1588 (-3,0%). Copper at 340 from 350 (-2,8%). CRB closes 281,9 from 289,4 (-2,6%). Ugly
Baltic Dry once more down 2.4% to 1100 from1127. Coalmine canary flying again?

EUR 1,258 from 1,275
ECB deposits back at EUR 764bn EUR 768bn.
All levels European COB 17:30 CET

Rest of the week:
EFSF 3 YRS to be launched tomorrow. MS mid to high teens probable.
Raft of PMI data. German PMIs fcst 47 after 46.2 and 52 after 52.2 for Manu and Serv . IFO expected at 109.4 after 109.9.  GDP 0.5% QoQ sa. French  Biz confidence fcst 94 after 95 and Serv PMI fcst 45.7 after 45.2.  EZ Composite PMI 46.6 fcst after 46.7.
Initial publication of a US PMI. Durable goods ex fcst +0.2% after -1.1% & claims fcst unchanged at 370k

Germany: Cons conf on Fri.
France: Thu production outlook,. Cons conf Fri.
Other EZ: IT Fri retail sales and biz conf. SP mortgages tomorrow, PPI Fri
US : Fri Michigan conf
Asia: China Flash PMI

Click link on title or below for today’s musical support:

You're quite safe here ...)

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