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


Friday, 25 May 2012

25 May 2012 – " Mala Vida " (La Mano Negra, 1988)

25 May 2012 – " Mala Vida " (La Mano Negra, 1988)
http://youtu.be/uHM0FxJ5qJI

Markets just remaining on the look out for every bit of Greek news and whiplashing back and forth on it. Had opinion polls showing Syrza in the lead as well as Monti stating the Greeks could remain in the EUR – or not – killing the European close rally mood and, after recovery, leading to a pretty flattish US close. Thus warned, and undecided, Asia went flat to slightly negative into the weekend, sparing itself manic-depressive swings.
Not much macro data to chew on to open the day. German consumer confidence flattish plus at 5.7 (fcst 5.6 unchanged, but prior revised to 5.7, too). French consumers a little more upbeat at 90 versus 88 unchanged fcst (here as well prior revised up one notch to 89). Italian Mar retails sales as expected down 0.2% MoM from a revised +0.9%.

Rather upbeat European open, after some pre-market future wobbles. Equities slightly stronger. Credit a tick tighter, financials catching up.

Again, after yesterday’s surge, French bonds had an explosive start, trading down up to 15 bp to hit new all-time lows at 2.415%. 5 YRS BTAN down through 1.25% and 2 YRS hitting 0.30%.
Zis ees zee Squeeeze! Haven’t yet been able to get to the real bottom of things. In my eyes, this looks far less like a sudden, fundamental change of view on France following the EU summit than some serious stop-out of major shorts. Given the speed and violence of the movement, this is a stop-loss situation, triggering stops on further shorts. There had been some discussions some months ago about how French bonds had become the collateral of choice to post (liquid, cheaper than Germany, but unlike Italy or Spain, less likely to suffer from a rise in haircuts). Might have been a major pre-election short gone sour, too. Or forced investment stops of lifers that had raised the foot from the pedal ahead of the elections. Whatever. I’d say there must be some blood on the wall somewhere, given the violence of the movement. Asian buying heard, too.
Whatever. Some respite from the French highs nevertheless by mid-morning.
Belgium to Spain in line with the movement, which had the advantage of taking Belgium through 3% (all-time low 2.83% in Aug 2010), Italy through 5.50% (all-time low 3.22% 21 Sep 2005) and Spain back to near 6% (all-time low here was 3.000% 22 Sep 2005).
For Financial Trivia freaks, Bunds were at 3.02% as well on 21 Sep 2005 and France was at 3.07%. Si! Spain traded negatively to Germany throughout the Summer of 2005…These were the days… (Source: Bloomberg)

Unsurprisingly, the upbeat mood didn’t withstand Belgium’s Reynders pondering Grexit, BuBa’s Weidman stating that the ECB had done all it could or other “contingency” (probably word of the week) musings or exhortations to the Greeks to remain on board.
So by lunchtime, things on my screens pretty much stood where there were at COB yesterday. France 4 tighter with Belgium. Italy and Austria 2 tighter. Bunds a tick wider. Financials 4 tighter. Spain flat.
After lunchtime, reverse time again: equities down 0.75%, credit flipping back to unchanged, Bunds and Core gaining a little and the Periphery out by 5 for Italy and 10 for Spain. No specifics: Cyprus bail-out, Grexit fatigue, Spanish region Catalunya vying for government help, US pre-open. Quite gloomy DB co-CEO outlook on Greece, Spain, banks. No data.
The question of Spanish contingent debt somewhat went under lately, even if the regions were asked to come up with figures Wednesday evening that showed a deficit of EUR 36bn (instead of the ear-marked EUR 8bn), next to EUR 15bn that were signed-off, these are some EUR 50bn that will need to be raised somehow.

EUR flirting with the 1.25 handle. The currency had tried to retake out the 1.26 at the open, having tested 1.253 on the latest Grexit comment in US trading and stuck there overnight in Asian trading, but failed to maintain the level.

US figures restricted to final University of Michigan confidence surprisingly posted at 79.3 on 77.8 unchanged fcst, helping RISK a leg up to close the week. At least for a while... Then everything drifting sideways into a sunny, extend weekend...

No government supply. Next to nothing in New Issues. As expected the UNEDIC deal was a nice windfall profit, on the back of the French squeeze (Priced MS +73 yesterday, now MS +60).
Large parts of Continental Europe are at least partially closed on Monday for Whit Monday. US closed for Memorial Day. Will thus be reduced activity or taking place in low volume. Periphery & UK open. Bund futures open.

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 1,37% (-2); Finland 1,76% (-2); Luxembourg 1,81% (-2); Swaps 1,80% (-3); Netherlands 1,87% (-1); Austria 2,33% (-3); France 2,51% (-3); EIB 2,54% (-3); EFSF 2,69% (-4); Belgium 3,05% (-2); Italy 5,65% (+8); Spain 6,30% (+16).
10 YRS Spreads: Finland 39bp (-1); Luxembourg 44bp (unch); Swaps 43bp (-1); Netherlands 49bp (+1); Austria 96bp (-1); France 114bp (-1); EIB 116bp (-1); EFSF 132bp (-2); Belgium 168bp (unch); Italy 427bp (+10); Spain 493bp (+17).

French bonds had an explosive start, trading down up to 15 bp to hit new all-time lows at 2.415%. 5 YRS BTAN down through 1.25% and 2 YRS hitting 0.30%. Bunds closing near 1.35% all-time low of yesterday.
Spain heavy. Had seen 6.45% at the worst last week, but had closed much better around 6.05%. Today started well and ended bad. Italy tagging along

EUR swap curve 2-5 YRS 37,1bp (-0,5); 5-10 YRS 59,9bp (-0,9) 10-30 YRS 19,1bp (+2,5).
2 YRS German BKOs closed 0,05% (-1) and 5 YRS OBLs 0,45% (-1).
OBL new low 0.42% yesterday and 2 YRS 0.03% this morning.

Main at 174 from 174 (unch); Financials at 297 after 293 (1,2% softer). SovX at 316 from 311. Cross at 717 from 716.

Stoxx Futures at 2154 / +0,4% (from 2146) with S&P minis at 1320 (+0,0% from 1319, at European close).
VIX index at 22,1 after 22,2 yesterday same time.

Oil 91,0/106,8 (WTI/Brent) from 91,2/106,6 (-0,2%/+0,3%). Gold at 1567 after 1572 (-0,3%). Copper at 345 from 345 (+0,2%). CRB closes 282,1 from 283,2 (-0,4%). About okay day here.
My canary is starting to lose colour, as the Baltic Dry fell again from 1058 to 1034. Had fixed at 1141 last Friday after an already wobbly week, so down 9%. Not good.

EUR 1,253 from 1,259
ECB deposits at EUR 761bn after EUR 766bn.
All levels European COB 17:30 CET

On the week (compared to Fri 18 May close):

We had closed last week on a “Last Dance” to reopen with “Money for Nothing” (at least when you’re the German Debt Agency) in a sideways market on Monday. Markets were “Back in the Saddle” for a full RISK ON day on Tuesday, which was totally over the top, as Wednesday’s “Paranoimia” induced by Grexit reversed the previous day’s rally pretty much in full. For yet no obvious reason, Thursday was sideways to positive, except for the French Debt Agency, which went “Ca plane pour moi”, given the huge OAT rally. Friday nearly started on “Le Freak, c’est Chic”, but I had to change that in the afternoon. Will keep it for future use.

10 YRS Yields: Germany 1,37% (-5); Finland 1,76% (-10); Luxembourg 1,81% (-9); Swaps 1,87% (-9); Netherlands 1,80% (-11); Austria 2,33% (-25);France 2,51% (-33); EIB 2,54% (-10); EFSF 2,69% (-12); Belgium 3,05% (-26); Italy 5,65% (-13); Spain 6,30% (+7).
10 YRS Spreads: Finland 39bp (-5); Luxembourg 44bp (-4); Swaps 49bp (-5); Netherlands 43bp (-6); Austria 96bp (-20); EFSF 132bp (-7); EIB 116bp (-5); Belgium 168bp (-21); Italy 427bp (-8); Spain 493bp (+12).

Did we mention the recurrent new lows in Bunds and the EZ Hard Core? Ah, yes, repeatedly, so we won’t do again. Soft core EZ zone doing the same now with France at the forefront of “near periphery rally in good days”. Periphery closing mixed with Italy lagging the Soft Core because of Spain that just went the other way round.

EUR swap curve 2-5 YRS 37,1bp (+0,5); 5-10 YRS 59,9bp (-0,6) 10-30 YRS 19,1bp (-3,1).
2 YRS German BKOs closed 0,05% (-1) and 5 YRS OBLs 0,45% (-4), on the week.
OBL new low 0.42% yesterday and 2 YRS 0.03% this morning.

Main at 174 from 181 (-3,6% tighter); Financials at 297 after 306 (-3,2% tighter). SovX at 316 from 311. Cross at 717 from 750. Credit still feels quite heavy and lagging most equity spurts.

Stoxx Futures at 2154 / +1,4% from 2124 with S&P minis at 1320 / +1,2% from 1304, at European COB last week.
VIX index at 22,1 after 22,3 last week.
Strange equity world. Market stress somehow not seen in the closing picture. VIX comfortable above 20

Oil 91,0/106,8 (WTI/Brent) from 92,2/107,3 (-1,2%/-0,5%). Gold at 1567 after 1596 (-1,8%). Copper at 345 from 350 (-1,4%) . CRB closes 282,1 from 289,4 (-2,5%).
Rough ride on commodities. Gold off lows, but heavy. Surprising in the ambient flight to quality mood. Need QE announcement. Copper fundamentally heavy on dire growth outlook, including China. Broad CRB shows the picture.
My canary is starting to lose colour, as the Baltic Dry fixed at1034, down from 1141 last Friday after an already wobbly week, so down 9%. Not good.

EUR 1,253 after 1,273 last Friday. Ugly, ugly, ugly...

Next week:
Long weekend with Monday off in some of Continental Europe & Memorial Day in the US. Running out of hard data. Market subject to latest rumour in one way or another. Flip a coin – or stay at home…
EZ hard data starting mid week. Big Friday US data dump!

Germany: Tue CPI fcst 2.2% unch YoY, Thu Retails Sales fcst +0.2% after 0.8% MoM & Unemployment fcst 6.8% unch
France:  Wed Apr jobseekers fcst 2904k after 2884k, Thu Cons spending fcst +0.3% Mom after -2.9%
EZ: Wed M3 fcst 3.4% after 3.2%. EZ confidence, Wed EZ CPI fcst 2.5% after 2.6%. Fri Unemployment and PMI confirmation
Periphery: IT Mon Biz conf 88.7 fcst after 89.5, Thu CPI fcst 3.6% YoY after 3.7%, Fri unemployment & Budget SP Tue Retails sales, Wed CPI fcst 2.0%, Thu Housing permits. GR Retail sales Thu. PMI Fri
US : Tue Case Shiller housing, Cons conf fcst 69.5 after 69.2, Wed MBA mortgages & Home Sales, Thu Claims, Chicago Purchasing. Fri non-farm payrolls, personal income, ISM, Constr Spending

Click link on title or below for today’s musical support:
http://youtu.be/uHM0FxJ5qJI
(Tough situation in Spain...)

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