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 5 June 2012

05 Jun 2012 – " Gimme Some Money" (This Is Spinal Tap, 1984)

05 Jun 2012 – " Gimme Some Money" (This Is Spinal Tap, 1984)

Well, after some wobbly back and forth, the US just closed where they were left at European COB, meaning more or less unchanged to Friday. Much better Asian session with equities closing about 1% higher, rebounding from Monday’s belated catch-up on risk bashing of Friday in Europe and the US. China service PMI at 54.7 after 54.1, the strongest reading since Q4/2011, counterbalancing the poor PMI data of last week. Had the RBA cutting rates by 25bp to 3.50% in the latest round of acknowledgement that things are getting soft out there (With inflation running at 1.6% YoY, the RBA certainly has way to go, if needed, unlike others...).  Japanese Comp PMI at 50.1 (Apr 51.3). The Song Remains the Same – for everyone...
European open thus cautiously optimistic, albeit staying close to COB. Equities up about 0.5%, EGBs broadly unchanged, maybe one bp tighter or so, as are first quotes in credit indices.
Only strong rebound has taken place in Oil, which opens about 1.75% higher, following the EUR rebound, which was squeezed overnight until 1.250 before starting the European leg just below the 25 handle.

With UK (incidentally downgraded by Egan Jones to AA- from AA last night) still on weekend, liquidity and flows should remain below-average. Markets settling in on neutral ahead of German Factory orders, European Service PMIs, retails sales and the upcoming G7 conf call. Quite doubtful the latter’s results will be earth-shattering and outside calls for growth support, ex-EU members calling the EZ to get its act together and some vague mumblings about being supportive to that, it’s difficult to see anything concrete. Spain now calling out “openly” for EU/ESM support for bailing out its banks (not itself…).
Among the anecdotes of the state of things is the story about EADS wanting to get a banking licence in order to deposit its liquidities (EUR 11.7bn end of 2011) directly at the ECB. Get a grip... It’s a hassle! With money soon at 0%, they’d be better off fixing those A380 wing cracks... or buying German 2 YRS. And with respect to raise short to lend long, outside Basel III coming up, there are already plenty ahead in the line to stop doing this. Looks like the Bafin sees it similarly... Still, a reflection of the mood.

Poor Services PMI at 41.8 (Apr 42.1) for Spain, with activity down at fastest rate since November. Otherwise, Final PMI numbers were close to expected albeit a tad weaker for the Franco-German couple, a tad stronger otherwise (EZ Comp at 46 after 45.9, Services at 46.7 after 46.5; Italy 42.8 after 42.3 and 42 fcst; France 45.1 after 45.2 flash unch and Germany at 51.8 after 52.2 flash unch). Giving a bit of support to the EUR, which was trading back down to 1.245. Everything else mostly unchanged with Core EZ bonds maybe a tick firmer. Overall confirmation of contagion & converging weakness… Add poor EZ retail sales missing -0.1%/-1.1% (MoM/YoY) forecasts with -1% and -2.5% respectively after prior +0.3% and -0.2% and you get the picture where we’re heading on Q2/GDP (probably minus 0.5% from flat)…
Enough to push the mood back into risk off with Core EZ EGBs on the rise, the Periphery softer and Soft Core acting as pivot. Equities back down and EUR testing the lower 24s.

Belgium bills on the chop today with EUR 1.8bn 3m at 0.213% and EUR 6m sold at 0.266% respectively, after 0.201% and 0.226% last month. Not that the couple of basis points do matter. Feels like surgical dissection. EFSF going for EUR 2bn 3m at 0.14% (from 0.17% last month).

Mood turning sombre on leaks that Germany would push for Spain to go for a bailout at the G7 conf call (Set to start at 13 CET). That one will end as verbal food fight on euro-solidarity and burden-sharing… IBEX futures, which were up nearly 2% for a while (after rising nearly 3% yesterday) turned flat over the lunch break. Periphery bonds pretty much unchanged from the late morning twist ( -4 / flat / +4 for Hard / Soft Core / Periphery).
In the meantime, the Finnish ForMin spelt out the obvious and urged for a Greek orderly default.

In absence of any joint comment after the call nor real run-down on its content, markets decided that something might still pop up and went back into neutral, with the Periphery back off wides, awaiting US figures. Had a short-lived spike on JPY from low 78 to the 79 handle, as Japan stated for the second time in as many days its displeasure with the Yen strength.
Yawn... "G7 agreed to monitor developments closely ahead of G20 summit”. Conference call probably yielded that further calls might be needed.
For European history trivia: The "Marshall Plan" speech at Harvard University, 5 June 1947, exactly 65 years ago today (link). And yet some sentences sound terribly up-to-date...

Afternoon figures with US Composite ISM for May rising to 53.7 (fcst was 53.8 after prior 53.5). Some short term solace and a bit of a risk spike, before people started chewing on the weak employment and price components.

Still feels empty without UK input. Tons of writing for not much change (except Spain doing better)... Something wrong about that!
Blank new issue screens.

Let’s see what the ECB has to say tomorrow...

Greek bonds guesstimates: Greek 2023s unchanged at 30% and 2042s at 25%. S&P estimate that there’s one in three chance for Grexit was no shocker either.
Quotes were 20.25% and 16.75% before the elections.

Closing levels:
10 YRS Yields: Germany 1,21% (-1); Finland 1,58% (unch); Netherlands 1,61% (+2); Luxembourg 1,61% (-2); Swaps 1,67% (+0); Austria 2,10% (+1); France 2,31% (+4); EIB 2,33% (-3); EFSF 2,48% (-2); Belgium 2,81% (unch); Italy 5,50% (-2); Spain 6,27% (-8).

10 YRS Spreads: Finland 37bp (+1); Netherlands 40bp (+3); Luxembourg 41bp (-1); Swaps 45bp (-1); Austria 89bp (+2); France 111bp (+4); EIB 112bp (-2); EFSF 127bp (-2); Belgium 160bp (+1); Italy 430bp (-1); Spain 506bp (-7).

EUR swap curve 2-5 YRS 32,8bp (-0,2); 5-10 YRS 48,8bp (+0,1) 10-30 YRS 15,1bp (+0,6).
2 YRS German BKOs closed 0,01% (-1) and 5 YRS OBLs 0,37% (+1).

Main at 184 from 184 (unch); Financials at 303 after 302 (about unch). SovX at 328 from 329. Cross at 738 from 737.

Stoxx Futures at 2083 / +0,3% (from 2076) with S&P minis at 1282 (+0,8% from 1272, at European close).
VIX index at 25,3 after 27,0 yesterday same time.

Oil 84,1/98,7 (WTI/Brent) from 83,0/97,4 (+1,3%/+1,3%). Gold at 1619 after 1615 (+0,2%). Copper at 331 from 333 (-0,6%). CRB closes 270,6 from 268,7 (+0,7%).
Good recovery in Oil on initially stronger EUR. Maintained some presence after the re-slide.
No Baltic Dry fixing given UK holiday. Was at 904 down from 923 (-2.1%) last Friday.

EUR 1,246 from 1,250

ECB deposits at EUR 781bn after EUR 785bn.
End of maintenance period will be 12 Jun, so we might see some acceleration in the built up in the coming days. All-time high was EUR 828bn early March.

All levels Tuesday COB 17:30 CET

This week:
Not really tons of data. Tomorrow, final EZ Q1/2012 & ECB. German 5 YRS auction. French long end on Thursday. Biggest periphery test this week is Spain with a sale of 2022s on Thu, next to some Portuguese bills (tomorrow). Small BONO auction, though (up to EUR 2bn), as if to state how far advanced Spain is in its programme.

Germany: Wed IP (fcst 0.8% after 1.6% YoY), Fri Import / Export & trade balance
France: Fri Biz Sen
EZ: Wed Final Q1 GDP, ECB
Periphery: IT Fri IP, PMI SP,Wed Ind Output
US:, Wed MBA mortg a Q1 Productivity, Thu claims, Fri Inventories.

Click link on title or below for today’s musical support:
Talking of Marshall, they DO go to Eleven!!! (link).
No Marshall without Les Paul, together with Nigel Tufnel, (link) with infinity amp setting and the amp capo...)

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