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


Wednesday, 13 June 2012

13 Jun 2012 – " Downtown Train " (Tom Waits, 1985)

13 Jun 2012 – " Downtown Train " (Tom Waits, 1985)
http://youtu.be/ja2evWhGWHA

Good US close, once Europe headed home, with a steady 3-stage rebound that had Dow and co close up over 1%. Asia mainly sideways, having been warned over the last few days that sticking close to home was probably the wise choice. Some late closer pushed well into positive territory on positive European starting quotes. Good jump in Japanese machine orders with 6.6% YoY in Apr beating +4.9% estimates (after -1.1%). No further Asian data. World Bank outlook wording similar to previous OECDs, IMFs and friends’ oracles and pointing to EZ headwinds.
EUR still rather static, on and off the 25 handle. EZ Final May CPI data dump rather unsurprising, maybe with the exception of Germany’s revised up one tick to 2.2% YoY, as somehow already acknowledged by the BuBa. Hardly worrying, though.

Puzzling. Again a wobbly start in EGBs, especially for the Hard Core with Bunds dumped right from the start (checking the future over 2 days reveals a pretty straight diagonal going down from left to right with only few rebounds) and taking the yield up to 1.50% ahead of this morning’s auction (up 7 bp from COB and 17 from Friday). This brings us back to mid May levels, when that level was first taken out, leading to a 1.13% intra-day low on 01 Jun. Unravelling of cheap money dreams? Dutch past 2% again, Austria back to 2.50% and France to 2.75%. Ok, remains bearable from an historic point of view.
Periphery had a short spike out at open to 6.18%, respectively 6.72% before finding solace in falling Bunds. Italy then back to 6.10%, but with no real correction of yesterday’s flattening move. Spain 6.65% (6.83% high yesterday, but definitively Nov 2011 levels).

Sideways market ahead of the auction results. Italy sold the targeted EUR 6.5bn (please excuse yesterday’s typo stating EUR 8.5bn) 12m at 3.97% (after 2.34% last month). Steep increase, but full auction. Full auction, but steep increase. Highest level since the LTRO-induced recovery (Highs were 6.09% in Nov and 5.95% in Dec 2011).
Getting EUR 3bn of 3 YRS BTPs and EUR 1.5bn of 2019 & 2020 on sales tomorrow. 3 YRS were auctioned at 3.91% last month after 3.89% in Apr and trade now in the 5.30s. So we still remain far away from the Nov 2011 auction high at 7.89%, but that’s of small comfort.
Germany tapped its 10-year for EUR 5bn at 1.52% (was trading 1.50% ahead of the auction). For once, not a record low, as last month auction was at 1.47%. Fears had done rounds about yet another “failed” German auction with the BuBa having to pick up slack for later intervention, so that wasn’t the case. Still, that the average yield came at a discount to the already heavily discounted level traded this morning shows the BOff (Bond Off) sentiment prevailing since yesterday. Had a short lived 40 cts uptick in Bunds on the news. Finally, EUR 1bn in German 2018 ILB were sold at -0.31%, but German ILBs is not the biggest market around.
Market comments of yesterday’s bond price action all about puzzlement and few firm explanations.

EZ Industrial Production better than forecast at sa -2.3% (fcst -2.7% after -2.2%, revised -1.5%), but with no impact.

Strange lunchtime picture of yet another day of German “demise”: all asset classes flattish, risk better in financials, BUT German Bunds out by 10bp to 1.53 (hence below auction level) and on the other end of the EGB spectrum Spain tighter by just 1 bp, but Italy getting some colour back at 6.09%. Pretty much opening quote. Hard Core EZ wider by 8 and Soft Core and Belgium by 1– 3 bp. EIB /EFSF equally wider by 7-9 bp. Bund futures down 100 ticks…

US kicking off the afternoon with tame May PPI numbers at +0.7% / 2.7% ex (fcst 1.2% after 1.9%, ex 2.8% after 2.7%) and Retails Sales a bit under expectations (-0.2% fcst -0.2% after +0.1%, but with low ex cars / gas numbers) and with Apr data revised lower. Apr Biz inventories at tick over forecast at 0.4% in Apr (fcst unch at 0.3%).

Had finally German 10s crawl back below the 1.50%-mark as equities turned soft(er), but barely a furious spurt. Tried some tea leaves reading and charts, but difficult to chart well uncharted territory…50d mavg is 1.527% / 100d 1.703%. Taking the last yield “spike” in March (2.07%) as start of the last leg to the 1.13% (01 Jun) low gives us levels at 1.35%, 1.49% and 1.60%. As such, holding the actual levels would be a rather important chart signal.
On futures, the equivalent 133.95-145.97 and back move gives 143.13 / 141.38 / 139.96.
Given the fact that the all-time low was only traded about 2 weeks ago, the relative increase of over 33% in such a short time-span is rather scary. Relative stronger move than for the Periphery, for instance, albeit from spaced-out level. Although VaR has suffered some serious cetacean credibility issues of late, this movement on the Core of Core will end blasting everyone's systems and could trigger reductions in positions here as well.

Not much to chew on otherwise. Grexit scenarios doing rounds. Softer periphery. Price action in EGBs more pavlovian, binary and understandable for a while, as in: Periphery up, Bunds down… And then, finally, no... With US equities rising and lifting Europe back again from its lows, Bunds took the Down Town Train again. Choppy close in equities near their lows.
Odd man out is the EUR, which kept a firmer tone and accelerated some 80 pips in the US session (Feb 1.3490 01 Jun 1.229 move has some resistance at 1.257, then 1.275) and taking out shorts.
Greek cash outflows and this weekend’s election seemingly only casual conversation material any more. Odd. Spailout? Forgotten. Very odd.

New Issues market a bit on back-burner today with the biggest deal a EUR 750m increase of French 10 YRS covered bonds by CRH. Add EUR 500m 8 RS for the German Land of Hessen at MS +5 and EUR 350m from low IG Manpower at 6 YRS at MS +300 to complete the picture.
Note that placement figures for yesterday’s EFSF 25 YRS seemed bare of Asian participation. Then again, such maturities tend to be way out of Asian CB interest.

Closing levels:
10 YRS Yields: Germany 1,50% (+7); Luxembourg 1,89% (+5); Finland 1,95% (+6); Swaps 1,95% (+7); Netherlands 2,03% (+6); Austria 2,49% (+4); EIB 2,61% (+6); France 2,72% (+2); EFSF 2,74% (+6); Belgium 3,21% (+3); Italy 6,20% (+5); Spain 6,72% (+4).

10 YRS Spreads: Luxembourg 39bp (-2); Finland 45bp (-1); Swaps 46bp (+1); Netherlands 53bp (-1); Austria 99bp (-4); EIB 111bp (-1); France 123bp (-6); EFSF 125bp (-1); Belgium 172bp (-4); Italy 470bp (-3); Spain 522bp (-3).

EUR swap curve 2-5 YRS 43,4bp (+1,3); 5-10 YRS 57,3bp (+1,4) 10-30 YRS 30,2bp (+9,1).
2 YRS German BKOs closed 0,130% (+3,7) and 5 YRS OBLs 0,59% (+5).

Main at 182 from 183; Financials at 290 after 295 (1,7% tighter). SovX at 322 from 323. Cross at 709 from 715.

Stoxx Futures at 2139 / -0,2% (from 2143) with S&P minis at 1317 (+0,6% from 1310, at European close).
VIX index at 23,0 after 23,6 yesterday same time.

Oil 83,5/97,7 (WTI/Brent) from 83,6/97,6 (-0,1%/+0,1%). Gold at 1621 after 1613 (+0,5%). Copper at 334 from 334 (-0,2%). CRB closes 271,1 from 271,5 (-0,1%).
Baltic Dry up again 1% to 902 after 893.

EUR 1,259 from 1,247

ECB deposits at EUR 798bn after EUR 787bn. Starting a new reserve maintenance period today, so should see the usual EUR 130bn or so dip as of tomorrow’s figures.

Greek bonds guesstimates: Sideways with 2023s unchanged at 29% and 2042s at 23.75% from 24% (20.25% and 16.75% before elections).

All levels COB 17:30 CET

Rest of week:
Germany: Thu Wholesale PX fcst 2.4% YoY
EZ: Thu ECB monthly, EZ CPI fcst 2.4% unch, EZ Q1 employment and trade balance
Periphery: IT Thu Gov Debt / SP Thu House prices
US: Thu CPI & Claims, Fri IP, Cap Util & U Michigan

Click link on title or below for today’s musical support:
 
http://youtu.be/ja2evWhGWHA
(All my dreams, all my dreams fall like rain  / On a downtown train .. Well, not just the tears...)

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