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

Friday 8 June 2012

08 Jun 2012 – " Toréador / Votre Toast, je peux vous le rendre " (Bizet, 1875)

08 Jun 2012 – " Toréador / Votre Toast, je peux vous le rendre " (Bizet, 1875)

Well, as it happens, Bernanke’s sequel of the previous day’s jedi mind trick of Draghi (“This is not the crisis you’re looking for...” link, but if there was any, I have a plan...) didn’t pan out as well as the ECB one. US markets closed from their highs, disappointed that nothing concrete was on the table (despite quite some dovish cooing in the ramp-up to his testimony). Add that Fitch 3 notch downgrade to BBB of Spain and closing rumours about Greek municipal employee strikes potentially disrupting the upcoming elections and the US, after a stronger start, pared gains and closed about flat.
Asia quite unhappy and closing the week on a heavy note, with especially Japan softer by 2%.

German trade getting hit strongly, as shown by disappointing Apr numbers: Exports down -1.7% MoM (fcst -0.7% after a revised lower 0.8%) and Imports slid a strong -4.8% (fcst -0.1% after +1.2%, revised +0.9%). Quite volatile numbers, but such strong dips in imports are rare. French Biz Sentiment as expected at 93, but prior revised down 1 tick to 94. These are Q3/2009 levels. Dutch IP sinking in Apr, but Mar revised upwards. Italian IP down a heavy 9.2% (fcst -7.2% YoY after -5.8%, revised to -5.6%).
Final Q1 Greek GDP revised wider to -6.5% YoY from -6.2% flash, Apr IP at -2.2% YoY, one of the “best” numbers since last summer.
IMF, Bundesbank, all forecasts sprinkled with serious doses of salt, euh, uncertainty… BuBa revising inflation upwards a little (OMG!) and shifting GDP growth from 2013 to 2012 (2013 revised to 1.6% from 1.8%, 2012 increased to 1% from 0.6%).

Standard European “Ouch!” open: Equities down 1%, Hard Core EGBs tighter by 3 and the Periphery out by 5 for Italy and over 10 for Spain on early morning quotes, before correcting back (Periphery wider by 10 to Bunds). Credit only slightly wider. EUR back below 1.25 and weighting on Commodities, already hit by non-QE. Round of ROff

Story doing its rounds that Spain will get its banks bailed-out over the weekend (EFSF, ESM, EU…Unclear who the paymaster will be…). ECOFIN conf call said to be planned. Germany pitching its usual “Spain just needs to say the B word”… and with everyone stating that Spain hasn’t asked for anything yet. Yawn…
ESM /EFSF utilization fine-print seemingly a procedural problem for direct bank recap, though.

Whatever, no massive shoe rain by noon: Equities and risk back to flattish. EGB curve unwinding yesterday’s twisting move with the Hard Cord at -7 and the Periphery at +6, Soft core in between. We closed at +7 for Hard Core and -19 for Spain yesterday, with Bunds +7, but with the Soft Core totally trashed after the French auction. No corrective outperformance of AFB today.

Spain 10s then hitting 6.20% highs traded in the morning in the afternoon session, as Spanish officials (No!) and German / EU officials (Si!) bicker over the wires, whether or not a Conf Call / Bail Out plea is supposed to take place this weekend. Seems like Spain wants to postpone anything to after the IMF report on Spanish Banking is due to be released (21 Jun), if possible even after its own consultant-supported test on 21 Jul... Verano caliente!
So, eventually, no, Madrid will not ask. Serious Game of Chicken, euh, Bullfighting. Hemingway would have been proud at this exercise of trying to stare down the Northern Front Bull(y).
Then again Spanish diplomats rumoured to prepare for bail-out plea... Who knows? Will wait for mañana...

US trade balance at USD -50.1bn with prior revised further to USD 52.6bn. USD 52bn-sized deficits were the lows several times since the massive post-Lehman correction, when shifting from an average of about USD 60bn between 2005 and 2008 to hit USD 25bn by mid 2009, before steadily slumping again.
Data week ending with US Apr wholesale inventories, rising higher than expected to 0.6% (fcst 0.4% from 0.3%). US risk trading a bit higher on that before paring gains going into European COB.

Hard Core closing off highs, credit mixed (Main a little up, financials a little down). EUR bounced off 1.255 support. Periphery put near the wides. Anything else, next week...

New Issues floor left to the EIB offering some yield (Well, so to speak, at 2.96%) with a EUR 1bn increase of its 2030 benchmark EARN at MS + 98.

Closing levels:
10 YRS Yields: Germany 1,33% (-4); Luxembourg 1,75% (-5); Finland 1,76% (-3); Netherlands 1,83% (0); Swaps 1,79% (-5); Austria 2,31% (-1); EIB 2,48% (-5); France 2,51% (-5); EFSF 2,60% (-5); Belgium 2,97% (-3); Italy 5,76% (+8); Spain 6,19% (+13).

10 YRS Spreads: Luxembourg 41bp (-1); Finland 43bp (+2); Netherlands 50bp (+4); Swaps 48bp (+1); Austria 98bp (+4); EIB 115bp (unch); France 118bp (-1); EFSF 127bp (0); Belgium 164bp (+1); Italy 443bp (+12); Spain 486bp (+17).

Have switched Italian 10 YRS ref to on-the-run Sep 2022 (14 bp wider).
Greek bonds guesstimates: In absence of fresh news, Greek 2023s stable at 28.5% and 2042s at 23.5% (20.25% and 16.75% before elections).

EUR swap curve 2-5 YRS 39,3bp (+0,8); 5-10 YRS 52,9bp (-0,3) 10-30 YRS 19,3bp (-0,5).
2 YRS German BKOs closed 0,04% (-3) and 5 YRS OBLs 0,44% (-4).

Main at 176 from 174 (2 ticks or 1,1% wider); Financials at 279 after 281 (2 ticks tighter or -0,5%). SovX at 320 from 317. Cross at 697 from 698.

Stoxx Futures at 2143 / +0,0% (from 2142) with S&P minis at 1308 (-0,5% from 1315, at European close).
VIX index at 22,5 after 22,0 yesterday same time.

Oil 83,2/98,0 (WTI/Brent) from 85,2/100,3 (-2,3%/-2,3%). Gold at 1583 after 1590 (-0,5%). Copper at 329 from 338 (-2,7%). CRB closes 270,8 from 274,3 (-1,3%). Trashy oil performance, after not holding above 100-mark. Cooper, too, weak, anticipating Chinese numbers. All very much EUR-related, too.
Baltic Dry finally halted its slide and fixed at 877 from 828.

EUR 1,248 from 1,258
ECB deposits at EUR 757bn after EUR 785bn.

All levels COB 17:30 CET

On the week (compared to Fri 01 Jun COB):
Another week of epic mood variations. We had closed last week on a sad note with markets tanking and going “Back to Black”. Monday morning was harsh, but eventually hopes to fix the Spanish bank capital question, and other funding needs (“Brother, Can You Spare a Dime?”), helped to stage a positive dynamic that lasted until yesterday. Still, it’s all about “Gimme Some Money”, mainly the Northern European one (as well as France’s given its sheer weight in the EZ, which a lot of French seem to underestimate) and the haggling over the conditions attached to that. Thursday woke up to the really good news that “Down Under” GDP was growing quite well. It was such a nice surprise that it kept everyone in the world cheerful for the rest of the day, although how that growth could translate elsewhere remains open. Yesterday’s Spanish auction and hopes of German inflection towards the Spain fixing things “A Mi Manera” was good for up to 25 bp in 10 YRS BONOs. That is, until the mood changed again, but we remain in Spanish musical mode with an ode to courageous Toreros.

And the winner of the week is? Certainly Spain, although no one really knows how and why… Yield in 10s melted away with subsequent squeezes (Mon -11, Tue -8 and Thu ahead of the auction and closing -19). Obviously softer today, but what a catch-up on the week! Have moved away from the uncomfortable zone over 6.5%.
Looser is France, as well as the Dutch. Supras EIB and EFSF still very correlated to swaps, so spreads to “real” EGBs mostly reflecting developments in the swap market and no real own dynamic. Might change if one or both are brought into the “growth, respectively bail-out game” and need to increase presence. Italy mainly driving in the shadow of Spain with lesser volatility.
10 YRS Yields: Germany 1,33% (+16); Luxembourg 1,75% (+15); Finland 1,76% (+23); Netherlands 1,83% (+31); Swaps 1,79% (+12); Austria 2,31% (+24);EIB 2,48% (+15); France 2,51% (+28); EFSF 2,60% (+13); Belgium 2,97% (+17); Italy 5,76% (-7); Spain 6,19% (-28).

Greek bonds guesstimates: Even Greece got carried away in the mood and in absence of fresh news, Greek 2023s performed to 28.5% from 30.5% and 2042s at 23.5% from 25.5% the week before (20.25% and 16.75% before elections).

10 YRS Spreads: Luxembourg 41bp (-1); Finland 43bp (+7); Netherlands 50bp (+15); Swaps 48bp (unch); Austria 98bp (+8); EFSF 127bp (-3); France 118bp (+12); Belgium 164bp (+1); Italy 443bp (-23); Spain 486bp (-44).

EUR swap curve 2-5 YRS 39,3bp (+8,5); 5-10 YRS 52,9bp (+3,6) 10-30 YRS 19,3bp (+4,0).
2 YRS German BKOs closed 0,04% (+4) and 5 YRS OBLs 0,44% (+12), on the week.
5 YRS quite beaten up, in the mid-week flight FROM quality mood, both in swaps and on OBL.

Main at 176 from 184 (-4,2%); Financials at 279 after 302 (-7,5%). SovX at 320 from 330. Cross at 697 from 736.
Credit in line with equities, but not leading. Financials profiting from general support mode. SovX and XO just tagging along.

Stoxx Futures at 2143 / +3,7% from 2066 with S&P minis at 1308 / +1,9% from 1284, at European COB last week.
VIX index at 22,5 after 25,8 last week.
European equities squeezed out. Dow Jones managing to crawl back into positive territory YTD.

Oil 83,2/98,0 (WTI/Brent) from 83,2/98,5 (unch/-0,5%). Gold at 1583 after 1609 (-1,6%). Copper at 329 from 331 (-0,8%) . CRB closes 270,8 from 269,1 (+0,6%).
Commodities whiplashed by EUR up and down trades, China fears, QE on/off hopes…Generally stronger on average, when seeing ALL components (metals, softs, etc).
Baltic Dry finally halted its slide and climbed back to 877 from a 828 low on Thu near last Friday’s 878. 2012 Low was 647 early Feb (would be another 22%). Intermediate high in the rebound was 1165 on 08 May (a 44.4% correction…).

EUR 1,248 after 1,238 last Friday

All levels Friday COB 17:30 CET

Next week:
Need to check out Chinese data over the weekend, given the pre-emptive POBC move. Europe very light on hard data with mainly inflation figures to be released.
Monday bills supply in GE and FR. Tuesday long end offers from Austria (10 & 50 YRS) and 20 YRS Dutch bonds. Greek bills, too. Wednesday 10 YRS BUND auction and Italian bills. Italian Zeroes on Thu.

World Bank Global eco forecast release on Tue
Germany: Mon Wholesale PX fcst 2.4% YoY, Wed May CPI fcst 2.1% unch YoY
France: Mon IP¨, Wed CPI
EZ: Wed EZ Apr IP fcst -2.7% after -2.2%, Thu ECB monthly, EZ CPI fcst 2.4% unch, EZ Q1 employment and trade balance
Periphery: IT Mon Final Q1 GQP, Wed CPI, Thu Gov Debt / SP Mon Housing transactions (Mar -22.7%), Wed CPI, Thu House prices
US: Tue Small Biz Optimism, Wed PPI, Retails Sales and Biz inventories, Thu CPI & Claims, Fri IP, Cap Util & U Michigan
Asia: China WE CPI fcst 3.2% after 3.4%, PPI, IP fcst 10.8 after 11%, Retail Sales fcst 14.6% after 14.7%, Trade balance

Click link on title or below for today’s musical support:
(Toréador! Toréador! / Et songe bien, oui, songe en combattant/ qu'un oeil noir te regarde…)

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