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 30 May 2012

30 May 2012 – " Don Giovanni – Il Commendatore Aria " (Mozart, 1787)

30 May 2012 – " Don Giovanni – Il Commendatore Aria " (Mozart, 1787) 

The repeated downgrade of Spain by the rating agency Egan Jones during European close did refresh risk appetite, at least temporarily in the US, which enjoyed a rather healthy 1% plus close nevertheless (witch exception of FB at -10%). It nevertheless send EUR plunging through 1.25, dragging commodities along. Positive equity close all the more surprising. However, media reports that the Spanish Bankia recap plans via government bonds via the ECB was not to the latter likes and Chinese stimulus measures back-pedalling on size and extent, sent markets overnight in risk aversion mood again.

RISK OFF start in Europe with equities down about 1%, Bunds down to (yeah, I know it’s boring) a new historic low for next 3 hours at 1.33% ( 2 YRS quoted just inside 0.03%) and the Periphery wider by 5 for Spain and a chunky 10 for Italy (ahead of its 5 and 10 YRS auction later in the morning). Very evidently, Italy over 5.85% is dangerously close to 6% and Spain over 6.50% is dangerously close to a wipe out to 6.75% or higher if markets get stressed. Sharp snap-back of credit, which had been too sanguine off late, with Main 5 wider and Financials back just below the 300-mark.

Light data front. Spanish CPI a tick lower than expected at 1.9 YoY. EUR M3 growth (or lack thereof) a surprise at 2.5% instead of expected 3.4% (after prior 3.2%). Belgian CPI lower. Portuguese Industrial production contracting further (-7.4% after -5.8% YoY) and retail sales sinking 9% after -4.5% YoY.

Mid-morning publication of EZ economic confidence figures weighting further on the mood: Consumer Confidence down to -19.3; Economic Conf at 90.6 (fcst 91.9 after 92.9); Industrial Conf down to -11.3 (fcst -10.2 after -9) and Service Conf at -4.9 (fcst -2.8 after -2.4). So all worse…
By 11 CET Italy was wider by 18 to 5.93% (still ahead of auction results publication) and Spain by 15 to 6.58%.
Italian auction with low bid to cover ratios not hitting the maximum targeted amounts (EUR 3.5bn for the 5s and EUR 2.75bn for the 10s). EUR 3.4bn new 5 YRS at 5.66% (after 4.86% last month) and EUR 2.3bn 10 YRS Sep 2022 at 6.03% (after 5.84% a month ago). Italian on-the-run 10s immediately hitting 6% after the announcement (pushing the corrective move to 25bp since yesterday COB and 35bp compared to last Friday). Spain adding 5 in sympathy.
Scary Italian short end with 2-3 YRS softer by 50 bp and 5s by 40bp. Spain 2-5 YRS 25 bp softer, flattening less then yesterday.
Had the ECB denied it had opposed Bankia recap plans as rumoured, but simultaneously Spain announcing its FROB bank fund would raise the funds (via government-guaranteed bonds?). Spanish Eco Min stating that 500 over Bunds is not sustainable (...), but that is due to the Greek situation (...) and expecting to tighten after the vote (...). Looks a little light as statement.
IMF report on Spanish banking due in the second week of June.
France, totally against the Core trend, hit real bad in sympathy with 10s trading out up to 10bp wider from COB by lunchtime with the EU pushing the new government hard upfront to get around 2013 deficit targets. Then again, last week’s sudden squeeze didn’t feel like being overly fundamental, either.

Markets getting some support from joint political / EU voicings about understanding Spain’s woes, supporting EU bank recaps etc…
…before Core EZ politicians reminded everyone that they (still) don’t see it that way.
Bunds still squeezing out new lows every 3 hours. Major equity indices and even credit remarkably resilient. EUR down to July 2010 levels. 2 YRS Schätze closed at par, hence 0.000%. Not a rounding error...
Like PIMCO’s Gross said a couple of months ago, it’s not anymore about the return ON your investment, but the return OF your investment.
Quite ugly day, in reality.

No real relief from US data with MBA mortgages down 1.3% (from previous +3.8%), despite record low mortgages, and Home Sales at -5.5% MoM after revised +3.8% a big miss from the expected 0%.

Ugly close... Then again, yesterday’s close was so oddly relaxed. Bloodbath in commodities.
Swaps of course closing on all-time lows 2 YRS 0.87% / 5 YRS 1.18% / 10 YRS 1.72% / 30 YRS 1.88%. Yes, below 2%...

There was a floor for new issuers – provided the issuer was from the Core, a corporate or from outside Europe. Had two German covered bonds for EUR 1.5bn, SSA supply via BNG EUR 2bn 7 YRS at MS +50 and ASFINAG providing solace to German insurers hunting for (a little) yield with EUR 1bn 20 YRS at MS +85 (or 2.87%). Corporates active via German Linde with EUR 500m 7 YRS at MS +35 (so easily competing with some Aa1 German covered bonds, and plenty of other government bonds with a reoffer yield of 1.80%) (Interpolated France at 2.11%, for instance) as well as Hutchinson Whampoa with a EUR 2bn double-trancher in 5s and 10s.

Irish vote on fiscal compact slated for tomorrow with latest polls showing a 18% lead for the yes. Although when seeing the bickering…(Irish Oct 2020s at 7.29%, 2025s at 7.23%)

Greek bonds guestimates: Greek bonds sinking further to all-time price lows on new polls showing Syrza way ahead. 2023s at 30% from 29.5% and 2042s at 25.5% from 24.50%.
Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,27% (-10); Finland 1,66% (-9); Luxembourg 1,67% (-11); Netherlands 1,69% (-9); Swaps 1,72% (-10); Austria 2,32% (-3); France 2,48% (-2); EIB 2,40% (-12); EFSF 2,54% (-12); Belgium 3,05% (-2); Italy 5,93% (+18); Spain 6,64% (+21).
Yeah, yeah, yeah. Core on all-time lows every 3 hours... So yada yada yada historic low etc etc... Ugly day in the periphery. Ugly day forFrance, which eventually contaminated and held back Austria and Belgium.

10 YRS Spreads: Finland 39bp (unch); Luxembourg 40bp (-1); Netherlands 42bp (+1); Swaps 45bp (-2); Austria 105bp (+7); France 121bp (+8); EIB 113bp (-2); EFSF 127bp (-2); Belgium 178bp (+8); Italy 466bp (+28); Spain 537bp (+31).

EUR swap curve 2-5 YRS 31,1bp (-4,2); 5-10 YRS 54,2bp (-2,9) 10-30 YRS 16,1bp (-1,1).
2 YRS German BKOs closed at par, hence 0,000% (-4) and 5 YRS OBLs 0,37% (-7).

Main at 177 from 169 (4,7% wider); Financials at 299 after 289 (3,6% wider ). SovX at 321 from 313. Cross at 719 from 693.

Stoxx Futures at 2116 / -1,8% (from 2155) with S&P minis at 1317 (-0,8% from 1328, at European close).
VIX index at 23,3 after 21,8 yesterday same time.

Oil 87,9/103,6 (WTI/Brent) from 91,9/107,5 (-4,3%/-3,6%). Gold at 1549 after 1574 (-1,6%). Copper at 338 from 349 (-3,2%). CRB closes 275,1 from 283,4 (-2,9%).
Baltic Dry still dropping, today to 950 from 986 (-3.6%). Had finally hurdled the 1000-mark mid-April. 647 was the low in Feb, so that’s still over 30% away…Then again, it didn’t take long during the last slide to get from 974 on 17 Jan to 647 on 02 Feb. It’s not like this is a liquid market.

EUR 1,240 from 1,253
ECB deposits at EUR 760bn after EUR 742bn.
All levels European COB 17:30 CET

Rest of week:
Germany: Thu Retails Sales fcst +0.2% after 0.8% MoM & Unemployment fcst 6.8% unch
France:  Wed evening Apr jobseekers fcst 2904k after 2884k, Thu Cons spending fcst +0.3% Mom after -2.9%
EZ: Fri Unemployment and PMI confirmation
Periphery: IT Thu CPI fcst 3.6% YoY after 3.7%, Fri unemployment & Budget SP Thu Housing permits. GR Retail sales Thu. PMI Fri
US: Thu Claims, Chicago Purchasing. Fri non-farm payrolls, personal income, ISM, Constr Spending

Click link on title or below for today’s musical support:
(Need to play that full blast! Very Rock ‘n Roll!)

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