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 31 May 2012

31 May 2012 – " Bass (How Low Can You Go?) " (Simon Harris, 1988)

31 May 2012 – " Bass (How Low Can You Go?) " (Simon Harris, 1988)

Uh. Early morning rain check: no shoes dropping. Flattish to positive European open. US closed bad, Asia, as so often lately just stayed close to home.
Official China PMI at 52 after 53.3, confirming the official view of a (controlled and orderly) softer landing (although I remain puzzled by the sharp Baltic Dry drop of late). Japan IP slightly lower than expected. Other stats (YoY vehicle production and housing starts) probably higher, given base effect of last year’s post Fukushima slump. India as headline mood spoiler with Q1/2012 growing a mere 5.3%
German retail sales beating estimates on MoM basis with prior data revised higher. Strange YoY drop. Unemployment dropping and rate at 6.7% after 6.8% expected unchanged. As for Bund yields, yet another all time low. Alles klar!.
French unemployment figures of yesterday evening slightly better than expected, but still 12th increase in a row. PPI flat. Consumer spending rebound at 0.4% YoY after revised higher -1.7%.
Half the EZ not feeling THAT bad, after all. Spanish housing permits still down, but slopping off.
Greek retail sales plunging (-15.1% YoY after revised -11%), reaching early 2009 depressed levels. Outlook sure is bleak.

Slight risk appetite recovery in equities. Credit back better after yesterday’s beating. Good opening rush in the Soft Core Austria / France / Belgium down 10 bp, dragging the Periphery along (so no leading rebound there yet). German curve a bit softer, so no flight FROM quality to speak of yet, either.

Tame EZ CPI figures at 2.4% (after 2.6% and fcst 2.5%). Italian CPI likewise down a tick, as was Spain’s yesterday. All in all, this could / should allow the ECB to sign off a rate cut next week (Wednesday for a change, Thursday being Corpus Christi holiday in parts of Europe), if only not to be seen as being totally unsupportive. Like, let’s go for a quarter, in order to do something and keep something, if needed at a later stage. Of course, the problem is not exactly the rate as such…

Now accustomed verbal ping pong on the tickers: necessity or not of eurobonds, periphery calls for ECB support, Draghi pushing back on mandate limitations and shareholders responsibilities as well as joint vision and bank recaps. Rhen distributing usual appreciation score cards to those who suffer. Nothing new. Cemented fronts here.

Lunch time levels show equities up 0.5%, risk down a couple of ticks, France to Spain tighter by 10 to 15 and the Hard Core softer by 1-2 basis points. 2 YRS BKOs at 0.01% (massively softer from yesterday’s 0.000 %...). EUR back up on the 24-handle from new overnight lows at 1.2360.
Still no shoe dropping, but rather quiet. Waiting.

Equities and Credit back to about flat / plus. Spain steadily inching back 5 by 5 and 20 tighter ahead of the US session. Rest of Soft Core and Italy still 10 tighter, and 15 for France. Hard Core steady nevertheless.  Commodities flat, except for slightly stronger Gold.

US Thursday data dump: ADP employment at 133k missed fcst 150k, with prior data revised lower from 119 to 113k. Claims higher, continuous claims lower, past data corrected higher. Doesn’t seem huge, but shows slower job market. Q1 personal consumption revised lower to 2.7% (from 2.9%). Not huge data set, but nothing positively exciting, either. Did put off the market from RISK “rather ON” to RISK “rather OFF”, but nothing panicky. From ROn/ROff+ to ROn/ROff-… Chicago PM huge miss at 52.7 (versus 56.8 fcts and prior 56.2) pulling the rug under ROn’s feet.

Exhaustion from Hispanic Panic? Markets didn’t blink much on Fitches downgrade of 8 Spanish regions, then again bringing itself in line with Moody’s and S&P peers. Catalunya now non-IG with Moody’s and just one notch above for S&P and Fitch. Talking of which, the Budget Ministry postponed the publication of Q1 regional budget data until tomorrow (for calendar reasons). Ah.
Spanish 10s tagging along the EGB rally, despite Spain CDS quoted about 20 wider at record 600.

Surprising bond close with ALL bond yields down, so no pivoting around the centre. New 10 YRS BUND low, needless information, and at close, at 1.205%. New all time UST low, too, at 1.545%. Then again, final leg of the afternoon is low on risk. RISK OFF. Credit soft, alongside equities and commodities with the EUR trading back mid 1.23s. Italy lagging EGB rally. Spain stuck above 6.50%.
Hmmm... Controlled Panic, I’d say. Something needs to yield. Tough May for risk with all major equities indices down 7-10% on the month. But as they say, "Sell in May etc etc..."

After yesterday’s France hick-up and with today’s recovery, the floor for New Issues was mainly driven by French corporates with Saint Gobain issuing EUR 750m 9 YRS at MS +200 and Aéroports de Paris with a EUR 800m 7 and 12 YRS double-trancher at MS +97 and 135 respectively. Deutsche Bank selling EUR 500m 10 YRS German mortgage covered bonds at MS +12, following yesterday’s Muenchener Hypo deal at +10.

Greek bonds guesstimates: Greek bonds sinking about stable with polls contracting one another: 2023s unchanged at 30% and 2042s probably rather 25% from 25.5% yesterday. Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,21% (-6); Finland 1,59% (-7); Luxembourg 1,63% (-4); Netherlands 1,61% (-8); Swaps 1,68% (-4); Austria 2,19% (-13); France 2,36% (-13); EIB 2,35% (-4); EFSF 2,50% (-4); Belgium 2,95% (-10); Italy 5,90% (-2); Spain 6,53% (-11).

10 YRS Spreads: Finland 38bp (-1); Luxembourg 42bp (+2); Netherlands 40bp (-2); Swaps 48bp (+3); Austria 98bp (-6); France 115bp (-7); EIB 114bp (+2); EFSF 129bp (+2); Belgium 174bp (-4); Italy 470bp (+4); Spain 533bp (-5).

EUR swap curve 2-5 YRS 29,6bp (-1,5); 5-10 YRS 51,9bp (-2,3) 10-30 YRS 16,8bp (+0,7).
2 YRS German BKOs closed 0,000% (unch) and 5 YRS OBLs 0,35% (-2).

Main at 180 from 177 (1,6% wider); Financials at 299 after 299 (unch). SovX at 325 from 321. Cross at 722 from 719.

Stoxx Futures at 2103 / -0,6% (from 2116) with S&P minis at 1299 (-1,4% from 1317, at European close).
VIX index at 24,8 after 23,3 yesterday same time.

Oil 86,6/102,0 (WTI/Brent) from 87,9/103,6 (-1,5%/-1,6%). Gold at 1564 after 1549 (+1,0%). Copper at 336 from 338 (-0,8%). CRB closes 273,5 from 275,1 (-0,6%).
Baltic Dry in deep depression with a fixing at 923 from 950 (-2.8%).

EUR 1,235 from 1,240
ECB deposits at EUR 770bn after EUR 760bn.
All levels European COB 17:30 CET

EZ: Fri Unemployment and PMI confirmation
Periphery: IT Fri unemployment & Budget SP. 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:
(Weren’t these repetitive shrieks real BIG then???)

(Added yesterday’s video with subtitled libretto (link). So on the spot, you can only appreciate the allegory. Plays in Spain, sung in Italian. Picture the Commendatore as the Ghost of Karl-Otto Pöhl’s Bundesbank spirit / ECB / Northern European front trying to wring Don Periphery of its libidinous debt. Treasuries departments in the role of Leporello, trying to be as supportive as possible to their masters...)
(Totally amazed by the sheer number of videos on this. Here another great one (link), very gothic, and the Batman vs. Don Supermani version (link), excellent as well).

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