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 7 June 2012

07 Jun 2012 – " A mi manera" Gipsy Kings, 1988)

07 Jun 2012 – " A mi manera " Gipsy Kings, 1988)

So where to go now, after yesterday’s kangaroo jumps to the upside? Very strong US close on their highs. Asia somewhat tamer, too, with exception of Korea, as it had been in last week’s down-legs, settling in for a good 1% upside on average. Still, China only about flat, although some of the mood was stemming from hopes of financial regulation delays. 
Surge of yesterday’s solely depending on suddenly renewed trust the CBU (Central Banks United) have a plan. A bit weak as fundamental driver...

Opening quotes initially a bit wobbly on the periphery, but as markets set in for an extension of yesterday’s optimistic drive, we had a 0.5% open in equities, credit down a couple of ticks, Core EGBs softer by 1-3 bp and, in turn, the Periphery equally stronger. Commodities taking a breather, as the EUR, which had a brush overnight with the 26 handle, opened tamer in the mid 25s in Europe.
 Parts of Northern Europe off / half off today. No major eco data to speak of anywhere. 
Movement a bit in the void on Spanish banking, not Spain, bail-out pitches, although the Northern front stance seems to remain rather stern on the matter. Ireland already crying out for same lenient treatment. Had Merkel on German TV repeat a call for further political union, before fiscal union. Anyhow, as long as that question is not solved, Europe will keep juggling... 

Hard Core / Periphery twisting motion accelerating with stops triggered in Bunds. Very unthankful to have BTP and especially BONO yields tanking by over 10 bp – just ahead of the auction (some 35 bp tighter than Friday’s close). In any case, caught in the movement, the good news was that the Spanish auction went well, taking out the targeted EUR 2bn amount with EUR 0.6bn 2s sold at average (stress average) 4.34% (after 3.46%), EUR 0.8bn 4s at 5.35% (after 4.32%) and finally EUR 0.6bn of the (slightly dreaded) 10s at 6.04% (after 5.74%), all in good bid to cover ratios. Why somebody would pay so high (pre-auction price 6.11%, 6.25% at yesterday’s closing and 6.46% on Friday) remains a mystery to me… This is further the case, when checking out the tails and stop out yields of 4.48%, 5.44% and 6.12%. So, yeah, EUR 2bn done, but the price is steep, despite today’s tightening. Then again, if it’s not Spain that will pay for its domestic banking bail out, there’s room for catch-up, asmore than 58% of its gross borrowing is by now covered. Will need some good lobbying with the Northern Front, though…

Right on Spain’s heels, France auctioned off EUR 1.7bn 2019 at 1.92%, EUR 3.5bn 2022s at 2.46% (Bund +110; after a 2.40% close and last month’s 2.96%), EUR 2bn 2026s at 2.90% (after 3.46% in Apr) and finally a slice of EUR 0.7bn ultra-long 2060s at 3.27%, about EUR 7.9bn in total. Other story than in Spain: record low price tag and certainly to the satisfaction of the new government, who ascertains that, despite first electoral promises already signed off on lowering back the retirement age, it will hit its deficit targets. The dreaded sell-off has not taken place. 1st assembly election round is this weekend, btw.

All results good for a bit more of RISK ON (Ron), although equities seem a bit out of breath after the 4% sprint since Friday and nearly 6% from Monday morning’s lows). Soft Core suffering most, weighted down by the French auction, with ABF a good 10 bp wider, Hard Core about 5 and the Periphery tighter by (only) 5 for Italy (just below 5.50%) and around 12 for Spain (just on 6.10%).

CBU intervention #1 over lunch with the POBC cutting rates for the first time since Sep 2008 with one-year deposits and one-year lending cut  25 basis points to 3.25% and 6.31%, respectively, starting tomorrow. Surprise timing, ahead of this weekend’s Chinese data dump, triggering a feeling that figures won’t look good. ROn, but ROff…

US claims, once more, were rather a let-down and capped the market progression with 377k claimants (fcst 378k), but with as so often lately past data revised higher (389k after 383k) and continuous claims still rising. Add to this a growing number of statistical drop-outs. So rather ROff…

Risk treading water on equities. Commodities mixed. Merkel acknowledgement of using “existing” instruments (?) (Seems there are some small-print EFSF provision allowing bank recaps) triggering further Spain strength, as well as financials performance. Had by mid-afternoon Spanish 10s down 25bp to 6.00% (helping those who over-paid the auction). Spain-Bund spread down to 461 from 529 at close last Friday. 

Italy slightly better, everyone else on the EGB front hammered about 10 bp +/-. Germany eventually the best performer in the sell-off (One never knows…). EUR squeezed out to low 26s, before dropping back (One never knows…).

End of afternoon tamer with Bernanke echoing Draghi in pitching responsibility back to the government, but ready to do whatever necessary, if necessary. QE off the table for the moment, triggering a reverse in Gold. Fitch raising the US AAA question (for 2013). 
Europe realizing that fine-print reading will be necessary on Spain, lifting Bunds off the ground and pushing Spain back off the 6%. SoftEZ trashed.

New Issues screens blank again for holiday. Small week…

Spain downgraded 3 notches to BBB by Fitch after COB. Too late for impact... 

Closing levels:
Sorry. Ran into WinTel problems into the close, so no numbered update for the moment. Why do financial softs not run on some more reliable???

Closing levels:
10 YRS Yields: Germany 1,37% (+5); Finland 1,79% (+8); Luxembourg 1,80% (+7); Netherlands 1,83% (+8); Swaps 1,84% (+7); Austria 2,31% (+15); France 2,56% (+16); EIB 2,53% (+8); EFSF 2,65% (+7); Belgium 3,00% (+15); Italy 5,55% (+3); Spain 6,06% (-19).

10 YRS Spreads: Finland 41bp (+3); Luxembourg 42bp (+2); Netherlands 46bp (+3); Swaps 47bp (+2); Austria 94bp (+10); France 119bp (+11); EIB 115bp (+3); EFSF 127bp (+2); Belgium 163bp (+10); Italy 418bp (-2); Spain 469bp (-24).

EUR swap curve 2-5 YRS 38,5bp (+1,4); 5-10 YRS 53,2bp (+1,9) 10-30 YRS 19,8bp (+4,1).
2 YRS German BKOs closed 0,07% (+2) and 5 YRS OBLs 0,49% (+2).

Greek bonds guesstimates: Even Greece is getting carried away in the mood and in absence of fresh news. Greek 2023s down to 28.5% from 30% and 2042s to 23.5% from 25%. (20.25% and 16.75% before elections).

Main at 174 from 177 (-1,3%); Financials at 281 after 290 (-3,3%). SovX at 317 from 324. Cross at 698 from 713.

Stoxx Futures at 2142 / +0,3% (from 2135) with S&P minis at 1315 (+0,7% from 1306, at European close).
VIX index at 22,0 after 23,5 yesterday same time.

Oil 85,2/100,3 (WTI/Brent) from 85,8/100,7 (-0,8%/-0,3%). Gold at 1590 after 1637 (-2,8%). Copper at 338 from 335 (+0,8%). CRB closes 274,3 from 274,4 (-0,1%).

Baltic Dry still on the slide, fixed today at 828 after 878 before the long weekend… Low was 647 early Feb ( would be another 22%). Intermediate high in the rebound was 1165 on 08 May ( a 44.4% correction…).

EUR 1,258 from 1,252
ECB deposits at EUR 785bn after EUR 787bn.
All levels Thursday COB 19:15 CET – after winning the fight with the WinTel demon in my pc...

Ending the week with bits and pieces on the data front. German Apr trade data (Ex fcst -0.7% after 0.8%, Imp -0.1% after 1%), French Business sentiment fcst 93 after 95), Italian IP (fcst -7.2% YoY after -5.8%). US trade Apr balance fcst USD -49.5bn and wholesale inventories fcst to grow 0.4% (after 0.3%). 
Nothing that ought to be a market mover, as such. So on look-out for political noise.

Click link on title or below for today’s musical support:
(Well, somehow, we still don’t know how they’ll do it, but certainly they’ll find a way...)

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