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 29 May 2012

29 May 2012 – " Relax " (Frankie Goes to Hollywood, 1983)

29 May 2012 – " Relax " (Frankie Goes to Hollywood, 1983)

Asia doing fine again, despite yesterday’s lukewarm European close. China to boost energy-savings via stimulus measure rumours being the main driver, as it seems. Japanese retailing and small biz confidence numbers mostly declining and rather lower than expected.

Spanish retail trade plunging 11.3% YoY (from prior -4%), the sharpest such drop since Feb 2009. German CPI fcst 2.2% unch YoY, Apr import prices actually lower than expect at 2.3% after prior 3.1% YoY. Then again, the EUR traded on average 1.317 throughout April. Now 4.7% lower, things might look different. German CPI at 2.1% after 2.2%, expected unchanged (EU harmonized).

Mildly positive European open with credit still rather more upbeat than other asset classes and still tightening. The rest pretty much were left yesterday, Core maybe a tad weaker, Periphery a tick stronger. Still, yesterday’s impact on Spain remains visible with 10s over 6.40%, over 500 to Bunds and wider by 15 to Friday afternoon. Italy 5 wider to Fri and could have gotten a little under pressure given tomorrow’s auction, but recouped most of yesterday’s sympathy widening ahead of the bill auction.
On the government funding side, my bad!, I skipped Friday’s announcement of Italy’s 5 and 10 YRS BTP auction tomorrow: EUR 2.5 to 3.5bn new 5s 4.75% June 2017 and EUR 2 to 2.75bn long 10s Sep 2022.

In absence of further shoes dropping, markets running a mildly equities RISK ON morning with equities up 1%. EUR up from the lows, but not bullish.
Italy getting planned EUR 8.5bn 6m bills done. Same as yesterday, and before, size done, price up. Price tag 2.10% after 1.77% last month. BC so that it fits, but nothing outrageous (1.6 after 1.7). Not that this was a surprise, but results showered the mood (once more) with markets slipping into RISK OFF turning slightly negative on equities, flat to soft on the periphery and tighter on the rest (thus triggering the umpteenth new historic low for Hard Core EZ bonds…).
Italian 2’s and 3s heavy again.
France sold EUR 4.2bn 3m at 0.08% (versus 0.07% one week ago), EUR 1.4bn 6m at 0.11% (after 0.10%) and EUR 2.3bn 12m at 0.18% (after 0.17%). For amateurs of macro variations, all 1cts wider, belying the OAT performance of last week.

As pointed out yesterday, the Spanish short end hadn’t flattened, which was surprising. That is solved: 2-5 YRS sold off by 15 to 10 bp, pretty much as Italy yesterday. 2-10 SPGB at 180 from 200 bp yesterday. Once an arb, you never cease to wonder…
EUR drifting sideways, not enjoying RO Day... Equity performance in reality mixed with France and Germany strong, others slightly up. IBEX hitting new lows (YTD -27%, 12m -39%) (All things relative. Italy down 37% on 12m, too, but “only” 13% YTD).
Spanish situation still very, very hazy on bank recaps and fronting regional finance needs (in trade off of some regional sovereignty... Mirroring EU/EZ discussions).
Had usual intra-European and institutional austerity versus growth versus fiscal integration versus sovereignty versus “let’s bail out the banks instead of the countries” versus “No, the ECB won’t do anything more” pitches from all involved parties. Not much traction on any subject, though.
Up a little, down a little, little tighter, little wider... All the while staying close to home. Reduced volatility. As if nothing was really happening. Relaxed...Feels odd.

US data with Case Shiller housing, mixed bag, overall slightly negative bias, though. Consumer confidence only 64.6 versus fcst 69.5 after 69.2, in turn reduced to 68.7. Dallas Fed likewise a miss. Doesn’t matter, as it seems...

EUR new issue basically restricted to Anglo American raising EUR 750m in 7 YRS at MS +123. Some German Pfandbrief issuers lining up deals at single digit levels to swaps.

Greek bonds guestimates: Positive poll momentum of the weekend fading and Greek bonds down again with 2023s at 29.5% from 29% and 2042s at 24.50% from 23.5%. Pretty much on record lows again (in price).
Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,37% (+1); Finland 1,75% (unch); Luxembourg 1,78% (-1); Netherlands 1,79% (-1); Swaps 1,82% (-1); Austria 2,35% (0); France 2,51% (-2); EIB 2,51% (unch); EFSF 2,66% (-1); Belgium 3,07% (-1); Italy 5,75% (+2); Spain 6,43% (-1).
10 YRS Spreads: Finland 38bp (-1); Luxembourg 41bp (-2); Netherlands 42bp (-1); Swaps 47bp (unch); Austria 98bp (-1); France 114bp (-3); EIB 114bp (0); EFSF 129bp (-1); Belgium 170bp (-2); Italy 438bp (+1); Spain 506bp (-2).

EUR swap curve 2-5 YRS 35,3bp (-1,8); 5-10 YRS 57,1bp (-2,8) 10-30 YRS 17,2bp (-1,9).
2 YRS German BKOs closed 0,05% (+2) and 5 YRS OBLs 0,44% (+2).

Main at 169 from 170; Financials at 289 after 294 (tighter by 1,7%). SovX at 313 from 317. Cross at 693 from 699.

Stoxx Futures at 2155 / +0,4% (from 2146) with S&P minis at 1328 (+0,6% from 1320, at European close).
VIX index at 21,8 after 22,1 yesterday same time.

Oil 91,9/107,5 (WTI/Brent) from 91,5/107,6 (+0,5%/-0,1%). Gold at 1574 after 1576 (-0,1%). Copper at 349 from 347 (+0,6%). CRB closes 283,4 from 282,1 (+0,5%). About okay-ish, but no real buoyant reaction to Chinese stimulus hopes.
My canary Baltic Dry is now in the triple-digit again, down to 986 from 1012 (-2.6%). Had finally hurdled the 1000-mark mid-April.

EUR 1,253 from 1,254
ECB deposits at EUR 742bn after EUR 760bn.
All levels European COB 17:30 CET

Rest of week:
Rather thin on data. Markets subject to latest rumour in one way or another. EZ hard data starting mid week. Big Friday US data dump!

Germany: 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 Thu CPI fcst 3.6% YoY after 3.7%, Fri unemployment & Budget SP Wed CPI fcst 2.0%, Thu Housing permits. GR Retail sales Thu. PMI Fri
US: 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:
(Yep. That’s the banned version. Now old enough...)

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