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 24 May 2012

24 May 2012 – " Ca Plane Pour Moi " (Plastic Bertrand, 1977)

24 May 2012 – " Ca Plane Pour Moi " (Plastic Bertrand, 1977)

Aaand... Reverse the reverse? Eventually not. Well, somewhat. There was a 1% plus US closing rebound (on unfounded rumours that all would be well after all) that brought US equities back to about their previous day closing level. Asia knew better this time and just closed unchanged, despite negative data (which probably has gone under in the prevailing mood) coming out of China with a 48.7 Flash PMI (down from 49.3). Then again, late whispers about the need for infra stimulus can only be strengthen by that.
EU summit results? None.
Markets opening on closing levels throughout all asset classes. Give or take. Maybe Gold a bit stronger, rebounding from Sep and Dec lows in the 1520/30s.

German GDP numbers confirmed at +1.7% YoY with not much surprise (construction and domestic demand numbers weaker, though, while export print revised higher). Manufacturing PMI at 45 lower than the 47 forecast (prior 46.2). Services unchanged and about on forecast. French Man PMI readings much softer than expected at 44.4 (fcst 47 after 46.9). Services, too, on the light side at unchanged 45.2 (fcst 45.7). In the same line, French Biz confidence lower at 93 (fcst 94 after 95) with quite depressed production outlook. Round up the depression with rising Dutch unemployment and falling producer confidence. Nothing upbeat round here.
Markets turning soft on this. You know the drill: EUR testing mid 25 handle. Core bonds tighter by 2, Periphery wider by over 5, equities turning soft and credit adding 5. Bunds trading new lows (1.35% in 10s). Yada yada yada…And that was even before dismal German IFO reading hit the screens with epic forecast fails at 106.9 / 113.3 / 100.9 for Biz climate, current and expectations (fcst 109.4 / 117.1 / 102 after prior 109.9 / 117.5 / 102.7). Expectations had only been for some slight corrections, not for gloom & doom.
And the Swissie? Stuck at 1.201. How much can the SNB sell, what do they buy against? Bunds? Had a spike the other way round, for once, in the afternoon on a rumour Greece and Switzerland were to negotiate taxing Greek holdings.

And yet, somehow, nerve-wrecking material having been burned through at this stage, markets bottomed out and rebounded rather sharply in equities (up 2% from the lows), a little in credit, but not for financials.
European bank resolution pitches will probably hit the same hurdles as “Eurobonds”, who pays for whom or in this case for whose banks that bought whose debt...

Should the EUR persistently fail to hold the 1.26 level, after this morning’s downside test, the picture looks quite ugly with June 2010 lows at 1.1875 as next real support. No holiday’s in California this summer. Will need to profit from falling Brent to travel Europe, although the latter is still trading at EUR 85/b versus last summer EUR 75/b... Austerity bites.

Ahead of US figures, very strong intermediate / Soft Core performance with Austria, Belgium and especially France tighter by 10 to 15 bp. Periphery just so so. Moody’s non-active on France and obviously undecided. Outlook could be raised or lowered, depending on finances.
Not sure about the reason for France’s outperformance. Raising Livret A (tax-free saving accounts totalling over EUR 220bn in France) would actually rather trigger a bid for inflation–linked bonds (as part of the remuneration is linked to inflation) and paying 2.25% tax-free and immediately available, this should be quite detrimental to life insurance policies. It’s not like the total amount would suddenly double, I’m puzzled. In any case, once squeezed, it did squeeze big time with 10 YRS French yields dropping like a stone, triggering stops, and taking 10s down 25 bp to 2.50%, taking Austria and Belgium and then the Periphery on the run. Nearing all time lows just below 2.50% traded respectively in Sep 2010 and 2011. 5 YRS BTANS down to new historic lows at 1.34% (from a 1.50% close yesterday). Likewise, French 2s hitting bottom at former low of 0.46%.
Obviously, France has lagged Germany, and Austria, for a while, but why the catch up today? And somehow, I doubt this is linked to yesterday’s performance at the EU summit… Big programme trade? Good for the French taxpayers!
Talking of lifers: need to wonder when the first German insurer, Dutch pension fund and then French lifer will cry out in pain given actual yield levels.

Durable good orders disappointing: headline figures in line (+0.2% after prior -4.2% revised to -3.7%), but ex trans down 0.6% instead of +0.4% (after -1.1%, revised -0.8%). Claims as expected at 370k, but prior data revised (again) higher by 2k to 372k. US preliminary PMI at 54 (new data set, no prior history).
European markets dampened a little as US opened just about flat without joining the relief party. Euh… What was the relief trigger again??? And then closing on the stronger side in equities.

No government supply for the rest of the week, bar the EFSF syndicated 3 YRS deal. Talking of which, there won’t be much on the block next week either: just French bills on Monday and Italian zeros, followed by Italian bills on Tuesday. Busy first week of June, though. EFSF still needs to raise a further EUR 30bn this year, so will remain a frequent guest.
Large parts of Continental Europe closed on Monday for holiday.
New Issues activity with EFSF EUR 3bn 3 YRS at MS +18, French UNEDIC EUR 1bn 6 YRS at MS +73, together with a double serving of German Pfandbrief “jumbolinos” (EUR 500m benchmarks), following this week’s BHH deal, with LBBW at 6 YRS at MS +7 and Deutsche Pfandbriefbank at 7 YRS at MS +60. Given the afternoon squeeze, probably some huge windfall profit for the UNEDIC buyers…

Greek bonds guestimates: unchanged with 2023s at 30.0% and 2042s at 24.0%. Stable on all-time lows on exchanged bonds. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,39% (unch); Finland 1,78% (-3); Luxembourg 1,83% (-1); Swaps 1,83% (-4); Netherlands 1,88% (-1); Austria 2,35% (-14); France 2,54% (-20); EIB 2,57% (-4); EFSF 2,73% (-3); Belgium 3,07% (-16); Italy 5,56% (-8); Spain 6,14% (-4).

10 YRS Spreads: Finland 39bp (-3); Luxembourg 44bp (-2); Swaps 44bp (-4); Netherlands 48bp (-3); Austria 96bp (-14); France 115bp (-20); EIB 118bp (-4); EFSF 134bp (-3); Belgium 168bp (-16); Italy 417bp (-9); Spain 475bp (-4).
What a day for Bunds (New 1.35% low). What a Day for France (New 2.50% low, before correcting!)! Austria and Belgium riding on the coat tails with Austria back through 100 to Bunds. Belgium nearing 3% mark. Periphery lukewarm and tightening a little in sympathy.

EUR swap curve 2-5 YRS 37,6bp (+1,9); 5-10 YRS 60,8bp (-0,2) 10-30 YRS 16,6bp (-0,1).
2 YRS German BKOs closed 0,06% (unch) and 5 YRS OBLs 0,47% (+2).

Main at 174 from 180 (3,5% tighter); Financials at 293 after 297 (-1,3%). SovX at 311 from 315. Cross at 716 from 740.
Financials still underlying heavy. Didn’t profit from European bank resolution pitches.

Stoxx Futures at 2146 / +0,9% (from 2126) with S&P minis at 1319 (+1,7% from 1297, at European close).
VIX index at 22,2 after 24,3 yesterday same time.

Oil 91,2/106,6 (WTI/Brent) from 90,5/106,3 (+0,8%/+0,2%). Gold at 1572 after 1540 (+2,1%). Copper at 345 from 340 (+1,2%). CRB closes 283,2 from 282,1 (+0,4%). Good Gold performance. Rebound.
Baltic Dry once more down from 1100 to 1058. Coalmine canary tweeting…

EUR 1,259 from 1,258
ECB deposits at EUR 766bn after EUR 764bn.
All levels European COB 17:30 CET
Long weekend with Monday off in some of Continental Europe. Running out of hard data. Market subject to latest rumour in one way or another. Flip a coin – or stay at home…

Germany: Consumer confidence fcst 5.6 unchanged (consensus probably too high again)
France:  Consumer confidence fcst 88 unchanged (Like for Germany, probably too high, given late data)
Other EZ: IT retail sales fcst -0.2% after +0.6% MoM SP mortgages tomorrow, PPI Fri
US : University of Michigan confidence fcst 77.8 unchanged.

Click link on title or below for today’s musical support:nb
(French MoF to stage a huge pogo party at Bercy tonight to celebrate the savings attained today!)

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