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

Monday 11 June 2012

11 Jun 2012 – " Unfinished Sympathy " (Massive Attack, 1991)

11 Jun 2012 – " Unfinished Sympathy " (Massive Attack, 1991)

What an exciting weekend (outside the weather): First, Moody’s growled after US close about rating downside of pretty much all, in case of Grexit, and of Spain in particular.  Then we had Spain giving in, or about to do so, (before rushing to the football field to play Italy...) and set to receiver up to EUR 100bn aid for its banks. Small (and as it seems capital) print not clear yet, especially as touted without (or few) (or yet to defined) conditions, depending on whom you ask. Oh, by the way, it’s not a bail-out. It’s a credit line...
Tons of things to chew on to start the week, but tons of Redux as well and pavlovian reactions: Will Ireland get the same preferential treatment, as they were brought down by the very same banking woes (Immediate demand already voiced)? Will Finland get collateral (Immediate demand already voiced)? If the loans don’t come from the ESM (, which Germany was about to sign on 01 July), but from the EFSF, what happens with the 13% quota of Spain (Re-dispatched to Germany, France...and Italy? Immediate question answered by no one). German camp very much not into “no special conditions” (Immediate ire already voiced). Cyprus very much interested in such credit line at these conditions (Voiced)... And Greece? Syriza probably very interested in the possibility to negotiate the conditionality of the bail-out, too...
The credit line on the FROB should be part of the official debt, so Spain’s debt/GDP ratio will soar. Coming back to Moody’s, who might not find that subtle difference to its likings; it the last rating agency to hold Spain on the single A line, meaning that a downgrade into the Baa field would trigger Spain to move into a lower rating bucket at the ECB, increasing the haircut by 5%.
Just to be fully complete Ugandan debt/GDP stood at 29.2% (2011.Source: IMF).

Mixed Chinese data dump over the WE: CPI down to 3% YoY (fcst 3.2%), lowest in 3 years, and IP at +9.6 % (fcst +9.8 % after 9.3%). Retail sales up 13.8 % (fcst 14.2% after 14.1%). All rather softish... On the stronger side, trade grew more than expected with Exports up 15.3% YoY (fcst 6.8% after 4.9%), mainly due to US increases, and Imports as well more than expected at 12.7% (fcst 5% after 3%).
Mixed data, but less bad than the surprise POBC cut might have led one to believe. Controlled soft landing? Slow enough for some stimulus?
French IP higher than expect at +0.9% YoY (fcst -0.3% after -0.9%), but balanced by manufacturing down -1.4% YoY (fcst -0.9% after -0.3%). Final Italian Q1/GDP confirmed a tick lower than previous at -1.4% (from -1.3%), so dire.

Very strong Asian session on ROn with equities up some 2% until European open. European open strong, but not explosive. Periphery yields down 12 bp for Italy and up to 20 for Spain, hitting the 6% mark, while the other EGBs went about 5 softer. Equities up 2%. Good credit performance with Main down 6 and especially Financials down 13. EUR of course swinging over the 26 handle and taking commodities along for a 2% increase.
Periphery excitement petering out by mid- / late morning with Spain trailing wider from its opening levels, at less than 10 tighter from Friday, but with equities and credit still remaining on initial higher levels. EGBs pretty much put at initial wider levels, despite the softening of the mood, before very, very slowly crawling back as the Spailout effect started to wane. No notable initial impact of the French election results on OATs.
By noon, the whole magic was over with Italy wider by 8 and Spain by 1 from Friday COB. Short lived... Then again, given all the above mentioned questions and open points, probably less a surprise. As it seems, the memorandum of understanding for the aid package has not begun to be drafted, state EU sources. Very clear contagion to Italy.

Acceleration of the worsening sentiment as US accounts came in with both Italy and Spain up to 20 bp wider and brushing respectively 6.00% and 6.40%, dragging the Soft Core EZ along with the AFB (Austria, France & Belgium) out by about 8 bp. Germany finally unchanged by that time, as equities started to pare gains and credit turned flat to COB. Seems all quite in slow motion, though. Had the seniority of the Spanish bail-out to other creditors raising a lot of questions. No eco figures out of the US to drive direction anywhere else.

All out capitulation in the closing hour with the Periphery out by 25-30 bp and closing over / near symbolic levels of 6% and 6.50%, Bunds reversing into standard flight to quality mode, equities paring their gains and financials drifting near 20 points wider than their opening squeeze. In one word: Ouch!

Germany issued EUR 4bn 6m bills at 0.007% (after 0.067% last month). France, in turn, sold EUR4.5bn 3m at 0.075% (from last 0.082%), EUR 1.8bn 6m at 0.129% (from 0.115%) and EUR 1.4bn 12m at 0.214% (from 0.178%). A cent or two more expensive, but then again... Readying for tomorrow’s long end supply with Dutch 20s and Austrian 10s and 50s (!).

MASSIVE New Issues pile up, right off the start to profit from ROn mood window: New Polish 10 YRS EUR at MS + / 4.00%. EIB adding EUR 350m to an outstanding 2020 deal at MS +55.
In financials, Nordic Swedbank and Svenska Handels in senior deals for EUR 1.25bn each for 3s at 85 and 6s at 92, respectively, as well as DNB Boligkredit for EUR 1.5bn 7 YRS covered bonds at MS+40 for EUR.
Huge corporate line up with no less than 6 deals printed: France Telecom EUR 1bn 10s at MS +122, Volkswagen long 3 YRS EUR 1bn at MS +60, GE 7 YRS EUR 1.25bn at MS +140, Telecom Italia EUR 750m double-trancher with EUR 3 YRS at MS +378 and EUR long 6 YRS EUR at MS +473. Add to this smaller offering of EUR 400m 7 YRS for Michelin and a EUR 250m 10s increase for Suez Env at MS +110.
Wow! Nearly EUR 12bn printed in 12 deals in a single day! Take this! Hope there won’t be any indigestion...

Closing levels:
10 YRS Yields: Germany 1,30% (-3); Luxembourg 1,72% (-2); Finland 1,75% (-1); Netherlands 1,83% (+0); Swaps 1,79% (unch); Austria 2,34% (+3); EIB 2,44% (-4); France 2,56% (+5); EFSF 2,58% (-2); Belgium 3,04% (+6); Italy 6,02% (+26); Spain 6,48% (+30).

10 YRS Spreads: Luxembourg 42bp (+1); Finland 45bp (+2); Netherlands 53bp (+3); Swaps 48bp (unch); Austria 104bp (+6); EIB 114bp (-1); France 125bp (+8); EFSF 128bp (+1); Belgium 173bp (+9); Italy 472bp (+29); Spain 518bp (+32).

EUR swap curve 2-5 YRS 40,5bp (+1,2); 5-10 YRS 50,4bp (-2,5) 10-30 YRS 19,3bp (+0,0).
2 YRS German BKOs closed 0,050% (+0,5) and 5 YRS OBLs 0,43% (-1).

Main at 178 from 176 (1,0% wider); Financials at 285 after 279 (2,2% wider). SovX at 322 from 320. Cross at 695 from 697.

Stoxx Futures at 2137 / -0,3% (from 2143) with S&P minis at 1313 (+0,4% from 1308, at European close).
VIX index at 21,5 after 22,5 yesterday same time.

Oil 83,3/98,5 (WTI/Brent) from 83,2/98,0 (+0,2%/+0,5%). Gold at 1585 after 1583 (+0,1%). Copper at 333 from 329 (+1,3%). CRB closes 271,6 from 270,8 (+0,3%).
Baltic Dry slightly up to 884 from 877.

EUR 1,249 from 1,248
ECB deposits at EUR 788bn after EUR 757bn.
The ECB confirmed once more the absence of any SMP buying last week.

Greek bonds guesstimates: 2023s stable at 28.5% and 2042s at 23.5% (20.25% and 16.75% before elections).

All levels COB 17:30 CET

By the way, I swear to abstain from football-related comments in the coming weeks, as I only like the US version. Still, if I remember well, Real Madrid had Ronaldo and Kaka as collateral with Bankia. Any claw back there?  What bucket? ECB must be looking forward to be fielding a team soon.

Next week:
Europe very light on hard data with mainly inflation figures to be released. Tomorrow long end offers from Austria (10 & 50 YRS) and 20 YRS Dutch bond, as well Greek bills. Wednesday 10 YRS BUND auction and Italian bills. Italian Zeroes on Thu.

World Bank Global eco forecast release tomorrow.
Germany: Wed May CPI fcst 2.1% unch YoY, Thu Wholesale PX fcst 2.4% YoY
France: 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 Wed CPI, Thu Gov Debt / SP 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

Click link on title or below for today’s musical support:
(Just need to put some finishing touches. Here... And there. And here... Oh, and there, too...)

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